In the United States and in many other countries,
people have something called a credit score which is a single number
that represents how likely they are to repay any loans that they might take out.
This credit score gets used by merchants when they offer goods on credit
by credit card companies and banks when they are offering cards,
mortgages, things of this nature.
It's even used by things like landlords when they want to offer an apartment for
rent.
So there are real financial consequences.
What goes into making a credit score is also more or less public and
people know that having a good history of making payments on time is important.
Not having too many inquiries is important.
This idea is something that China has recently
announced they would like to expand,
to create what they're calling a social credit score.
All details of the social credit score are not yet announced.
And as far as I know we're actually not even completely determined.
However, we have some indications,
there are already some locally created credit score
type things that Chinese merchants have been doing and
that the government is promoting the creation of as
a trial balloon towards the social credit score.
Alibaba, for instance, has something called their Sesame Credit.
Looking at what these credit systems do and what the government is saying,
there are a few things that one can take away.
It appears that your credit score for the social trade system will depend not
only on your reliability in making payments, etc., but also on other things.
For example, on what you buy.
If you buy a lot of video game time, for instance, it is likely that
you are somebody who just whiles away their time sitting on a couch.
On the other hand, if you're buying diapers lets say,
then you're probably a parent of a young child.
And if you're responsible enough to take care of a young child and
remember to buy diapers for your child then you're probably a responsible
person and therefore deserve a higher score.
It is not just what to buy but
also the kinds of things you do with things you buy.
So for example, you may have the right to return a product
that you bought online if you are not satisfied with your purchase.
But every time you do a return that may damage your credit score.
And so this is something that you might be encourage to use as a last resort.
If you're really unhappy with your approaches but its not something that
you can afford to do on a regular basis because if you frequently approach
is to turn things, then you will end up with a low social credit score.
And you may no longer qualify for online purchases, or
purchases that come with return guarantee.
Non-commercial transactions are also things that are expected
to be included in this notion of a social credit score.
So in particular, what you do on social media can make a difference.
If you link to articles that the government would consider
good citizenship or if you point your friends to articles
of this type, then you can get social credit points.
Whereas, if you do that to articles that are more controversial,
you might lose social credit points.
All of these things have people troubled.
And given that China is not a democracy,
it is easy to see many ways in which this kind of system could be abused.
But let's take a step back and look at some parallels with things
that are happening in other places, such as the United States.
We have, for a long time, had insurance companies
that would pay you whatever you were insured for but
charge you a higher rate for having exploited your insurance policy.
And that is considered a perfectly reasonable thing to do.
So, for example, if you have an auto policy,
you have a certain premium that you pay initially.
If you have an accident, they will pay for the repairs and
then they will charge you a higher interest rate the next time.
The justification is that in terms of probability models, if you've had
one accident you're more likely to have a second accident than the average person.
And so it's a well justified thing.
The question is is that that much different from somebody
who has returns on the product?
If somebody who returns the product once, they are more likely to
return a second product than a random person who's never done a return.
Now that we have sensors that can be mounted on cars, insurance companies
are looking at having these sensors report to them, your driving habits.
And your insurance rate will be tied to how well you drive.
And so even if there is claim made, if you drive in a rough manner,
if you break suddenly, if you go over the speed limit.
All of these things, the things that'll drive up your insurance rate and there's
a question of how societal acceptance will be for these kinds of products.
In the financial world, it used to be the case that credit
scores were the standard thing that everybody took into account.
But today we have a number of new financial entities that
are building more complex and more interesting financial models.
Taking into account a wide range of data that they have access to about to you,
including for instance your social media postings.
And now they have something that gives them a better basis to choose
your credit worthiness than just your credit score.
So yes, the only place that this is making a difference is in terms of giving you
a virtual credit score that some startup financial company has for you,
that's different from your official credit score.
But how do you feel about all aspects of your life, or all aspects
of your life that they have access to, folding into their construction.
Using a completely proprietary algorithm of a credit score that
they used to decide whether to do business with you.
Vast amounts of data and multiple sources that are available and
even more are going to be available in the future.
And as a society we have to decide which of these make sense to do and
how much control individuals should have about how these data get used.
H.V. JagadishBernard A Galler Collegiate Professor
