11 ms·

Machine learning is helping auto lenders make better decisions

37 points by resalisbury 8y ago

benj111 8y ago
The title has been changed from the article, and I think slightly misses the point. Plus ML can be more biased than humans (or more biased than we will admit to) https://www.bbc.co.uk/news/technology-45809919 https://www.bbc.co.uk/news/technology-45809919
ralph84 8y ago
I guess it's, like, the author's style to use the ..., like, ... construction, but that makes it no less annoying.
- csa 8y ago
  After a quick scan, I only saw this used once. Does it really bother you that much? That said, the ellipsis construction is used in an attempt to make text feel more like casual conversation — in this case, something like drawing out the preceding word in a questioning manner or a maybe a pregnant pause. This is a very standard device used in the register that Matt Levine uses for his column, and I imagine that most people find that these casual devices he uses makes his column more accessible for a wider audience.
  - ralph84 8y ago
    Three times. There's nothing wrong with writing informally for a wide audience, but in this context it just comes across as "How do you do, fellow kids" rather than making the content any more accessible.
    - csa 8y ago
      I’m not sure you know who Matt Levine is. He’s very much not a kid. He is a Harvard grad, a former lawyer, a former investment banker at Goldman, and a current writer with Bloomberg who is often described as one of the best writers at explaining complex aspects of finance in an accurate, understandable, and entertaining way. He has many fans on HN. I encourage you to subscribe to his Money Stuff article/newsletter. It’s free... and good.
dhh2106 8y ago
Here's the main study cited in the article: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3301009 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3301009 "We find that the same minority applicants who faced lower approval rates on auto loans do not face lower approval rates on credit cards, even during the same year. This finding suggests that the human element of auto lending, rather than differences in hard information, leads to the lower approval rates for minorities."
- deleted 8y ago
  [deleted]
- mhuffman 8y ago
  This insinuates that car lenders are racist. I am truly curious of what the business model of denying minorities a car loan is? I mean, long ago, I guess I can at least process the ugly mindset of "we don't want 'them' as our neighbor", but I can not come up with any logical or illogical reasonable reason why a business person would intentionally lower their income just to be racist. Literally no one would know that you made a loan to a minority, so that can't be it. Is the insinuation that the loan officer might "get a feeling" that a person might not repay a loan based on the race? If that were the case, at least in the financial sector, it would seem that another financing institution would have noticed this inefficiency long before 2019 and gobbled up all of that free money on the table. I also wonder if the higher interest rates of credit cards accounts for higher approval rates.
  - crooked-v 8y ago
    > I am truly curious of what the business model of denying minorities a car loan is? Why does it have to be a business model? Humans are not rational actors. The segregation era almost certainly lost tremendous amounts of money for retail businesses as a whole, but their management still went along with it. The remaining implicit bias in many businesses still loses tremendous amounts of money for retail businesses as a whole (see the various "wealthy black celebrity treated like a shoplifter" news stories, for example), but people still do it.
apocalypstyx 8y ago
"Once men turned their thinking over to machines in the hope that this would set them free. But that only permitted other men with machines to enslave them." " 'Thou shalt not make a machine in the likeness of a man's mind,' " Paul quoted. "Right out of the Butlerian Jihad and the Orange Catholic Bible," she said. "But what the O.C. Bible should've said is: 'Thou shalt not make a machine to counterfeit a human mind.'
- sgt101 8y ago
  Oddly, prescient.
- lifeisstillgood 8y ago
  The Dune trilogy / quadrilogy whatever yes?
  - apocalypstyx 8y ago
    It's actually a hexalogy, but, yes.
- mr_toad 8y ago
  The prescription against thinking machines, along with similar plot devices (shields promoting hand-to-hand combat, the defacto ban on atomic weapons) allowed FH to construct a quasi-medieval SF setting. I wouldn’t take mystical pronouncements in fictional settings intended to advance a plot too seriously.
m0zg 8y ago
Makes sense. Just don't use race, gender, or ethnicity as a feature in the model and those factors _per_se_ won't be a consideration. Their correlates might still be a consideration, however, so it's not an entirely "fair" system, in the social-justice sense. Bias generated in meatspace will still affect it indirectly.
- anewguy9000 8y ago
  wouldnt a system that is "blind" in the sense that it has no prejudice be free to use those (anything) as features? isnt the whole point of the NN to get loans repaid?
  - m0zg 8y ago
    Yes, but then you end up in a morally fraught territory where someone can claim that you ended up rejecting the loan because someone is a woman or gay or whatever. If those factors _directly_ aren't a consideration, your position is a lot more defensible. Story time: Google ad serving system used to think (and probably still does) that if someone is interested in engineering topics per their browsing patterns, they're a male, much to the consternation of female Google engineers. If gender wasn't a feature in the system at all (an unrealistic proposition in an ad targeting system), this problem would not arise as there would be no way for a system to determine if someone is male or female due to the absence of the corresponding feature, and therefore descriptive vocabulary. More defensible, at least, if not "fair".
Iwan-Zotow 8y ago
"make better decisions" as making themselves richer and consumers poorer?
- dan-robertson 8y ago
  If you make bad decisions by offering loans at too low a rate, you will lose money on average and eventually go bankrupt. If you make bad decisions by offering loans at too high a rate because you have high overheads or you’re cautious or your actuaries are wrong or you’re racist then people won’t take out your loans because they get a better deal elsewhere or the loan is too expensive so you lose money by not profiting from making the loan. Now there’s a balance here: you want to be competitively priced so people will take out your loans but you also want higher margins so you can make more money for investors or expand or make less money in other places to attract customers. I think in this case “make better decisions” means either morally better (ie less racist), or better in the sense of “make better deals to win more customers to make more money”
  - Iwan-Zotow 8y ago
    What kind of function ML is optimizing? Who specified that function? Lenders made their decision from the dawn of time, so we have some data to compare. Now (say, last year) they made decisions with help of ML - what changed? Who got a better deal?

37 points by resalisbury 8y ago

The title has been changed from the article, and I think slightly misses the point. Plus ML can be more biased than humans (or more biased than we will admit to) https://www.bbc.co.uk/news/technology-45809919 https://www.bbc.co.uk/news/technology-45809919

ralph84 8y ago

I guess it's, like, the author's style to use the ..., like, ... construction, but that makes it no less annoying.

csa 8y ago
After a quick scan, I only saw this used once. Does it really bother you that much? That said, the ellipsis construction is used in an attempt to make text feel more like casual conversation — in this case, something like drawing out the preceding word in a questioning manner or a maybe a pregnant pause. This is a very standard device used in the register that Matt Levine uses for his column, and I imagine that most people find that these casual devices he uses makes his column more accessible for a wider audience.
- ralph84 8y ago
  Three times. There's nothing wrong with writing informally for a wide audience, but in this context it just comes across as "How do you do, fellow kids" rather than making the content any more accessible.
  - csa 8y ago
    I’m not sure you know who Matt Levine is. He’s very much not a kid. He is a Harvard grad, a former lawyer, a former investment banker at Goldman, and a current writer with Bloomberg who is often described as one of the best writers at explaining complex aspects of finance in an accurate, understandable, and entertaining way. He has many fans on HN. I encourage you to subscribe to his Money Stuff article/newsletter. It’s free... and good.

dhh2106 8y ago

Here's the main study cited in the article: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3301009 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3301009 "We find that the same minority applicants who faced lower approval rates on auto loans do not face lower approval rates on credit cards, even during the same year. This finding suggests that the human element of auto lending, rather than differences in hard information, leads to the lower approval rates for minorities."

deleted 8y ago
[deleted]
mhuffman 8y ago
This insinuates that car lenders are racist. I am truly curious of what the business model of denying minorities a car loan is? I mean, long ago, I guess I can at least process the ugly mindset of "we don't want 'them' as our neighbor", but I can not come up with any logical or illogical reasonable reason why a business person would intentionally lower their income just to be racist. Literally no one would know that you made a loan to a minority, so that can't be it. Is the insinuation that the loan officer might "get a feeling" that a person might not repay a loan based on the race? If that were the case, at least in the financial sector, it would seem that another financing institution would have noticed this inefficiency long before 2019 and gobbled up all of that free money on the table. I also wonder if the higher interest rates of credit cards accounts for higher approval rates.
- crooked-v 8y ago
  > I am truly curious of what the business model of denying minorities a car loan is? Why does it have to be a business model? Humans are not rational actors. The segregation era almost certainly lost tremendous amounts of money for retail businesses as a whole, but their management still went along with it. The remaining implicit bias in many businesses still loses tremendous amounts of money for retail businesses as a whole (see the various "wealthy black celebrity treated like a shoplifter" news stories, for example), but people still do it.

apocalypstyx 8y ago

"Once men turned their thinking over to machines in the hope that this would set them free. But that only permitted other men with machines to enslave them." " 'Thou shalt not make a machine in the likeness of a man's mind,' " Paul quoted. "Right out of the Butlerian Jihad and the Orange Catholic Bible," she said. "But what the O.C. Bible should've said is: 'Thou shalt not make a machine to counterfeit a human mind.'

sgt101 8y ago
Oddly, prescient.
lifeisstillgood 8y ago
The Dune trilogy / quadrilogy whatever yes?
- apocalypstyx 8y ago
  It's actually a hexalogy, but, yes.
mr_toad 8y ago
The prescription against thinking machines, along with similar plot devices (shields promoting hand-to-hand combat, the defacto ban on atomic weapons) allowed FH to construct a quasi-medieval SF setting. I wouldn’t take mystical pronouncements in fictional settings intended to advance a plot too seriously.

m0zg 8y ago

Makes sense. Just don't use race, gender, or ethnicity as a feature in the model and those factors _per_se_ won't be a consideration. Their correlates might still be a consideration, however, so it's not an entirely "fair" system, in the social-justice sense. Bias generated in meatspace will still affect it indirectly.

anewguy9000 8y ago
wouldnt a system that is "blind" in the sense that it has no prejudice be free to use those (anything) as features? isnt the whole point of the NN to get loans repaid?
- m0zg 8y ago
  Yes, but then you end up in a morally fraught territory where someone can claim that you ended up rejecting the loan because someone is a woman or gay or whatever. If those factors _directly_ aren't a consideration, your position is a lot more defensible. Story time: Google ad serving system used to think (and probably still does) that if someone is interested in engineering topics per their browsing patterns, they're a male, much to the consternation of female Google engineers. If gender wasn't a feature in the system at all (an unrealistic proposition in an ad targeting system), this problem would not arise as there would be no way for a system to determine if someone is male or female due to the absence of the corresponding feature, and therefore descriptive vocabulary. More defensible, at least, if not "fair".

Iwan-Zotow 8y ago

"make better decisions" as making themselves richer and consumers poorer?

dan-robertson 8y ago
If you make bad decisions by offering loans at too low a rate, you will lose money on average and eventually go bankrupt. If you make bad decisions by offering loans at too high a rate because you have high overheads or you’re cautious or your actuaries are wrong or you’re racist then people won’t take out your loans because they get a better deal elsewhere or the loan is too expensive so you lose money by not profiting from making the loan. Now there’s a balance here: you want to be competitively priced so people will take out your loans but you also want higher margins so you can make more money for investors or expand or make less money in other places to attract customers. I think in this case “make better decisions” means either morally better (ie less racist), or better in the sense of “make better deals to win more customers to make more money”
- Iwan-Zotow 8y ago
  What kind of function ML is optimizing? Who specified that function? Lenders made their decision from the dawn of time, so we have some data to compare. Now (say, last year) they made decisions with help of ML - what changed? Who got a better deal?