I worked at a place like that before. A lot of people were grumpy that they were not progressing. Some of them were probably right; some were probably wrong. But it was clear to me that having a concrete thing to aim for (a new title) mattered. A lot.

I take it that wasn't the case at Palantir. Since I'm convinced that all humans are status-seeking, I'm curious how Palantir satisfied that urge, if not w/ title differentiation.

Is it bad to discourage status-seeking behavior, such that the people are just that way... look elsewhere?

I don't believe in good or bad wrt stuff like this. You're welcome to try to discourage it, but success would depend crucially on how many people really are not "that way." I don't think I'd take that bet, personally, but it's possible I've lived in a strange sub-world and have met unusual people.

Can you, as a business, afford it?

Probably? Is it really the ladder climbers or the everyday folks doing the grunt work?