3 ms·

You realize location can easily be a proxy for protected classes such as race? And suppose a location has been found with above average risk. To compensate, we

by Thiez 3y ago

You realize location can easily be a proxy for protected classes such as race? And suppose a location has been found with above average risk. To compensate, we increase interest rates in that area... making it more likely that people are unable to repay their loans, making the area more risky, increasing interest rates... the risk estimation algorithm essentially becomes part of enforcing and maintaining existing economic inequality.

whimsicalism 3y ago
I suspect that they do not care, given the hardline stance they are taking.
chii 3y ago
if those at a particular location _indeed_ have higher risk, then what's wrong with having a higher interest? Are you saying that a business must lend at a lower interest rate, for some sort of social justice and equality? If those people at said particular location _actually_ does not have higher risk, but is only higher due to their location association (e.g., their job is secure, etc), then an enterprising lender could find that out, and thus get the business from those people at a lower interest rate. This would be a form of arbitrage - they will steal marketshare from another lender who is unwilling to lend at the lower rate.
xwdv 3y ago
The only reason we don’t take race as a factor in credit scores is because it is illegal, not because it wouldn’t lead to more optimized outcomes. If members of a certain race consistently don’t pay debts in a way that is statistically significant, then it would be prudent to lend to them at higher interest rates due to perceived risk. Sounds racist, but reality has no obligation to conform to our ideas of racial equality. Races can develop habits and cultures amongst themselves that produce certain emergent behaviors. I think arguing against this just makes you seem naive. In the above example, you are more than welcome to ignore race and lend money to everyone at the same interest rate regardless of race, but I predict you will see worse returns. Reality is what still exists even if you close your eyes and ignore the data.

by Thiez 3y ago

whimsicalism 3y ago

I suspect that they do not care, given the hardline stance they are taking.

chii 3y ago

if those at a particular location _indeed_ have higher risk, then what's wrong with having a higher interest? Are you saying that a business must lend at a lower interest rate, for some sort of social justice and equality? If those people at said particular location _actually_ does not have higher risk, but is only higher due to their location association (e.g., their job is secure, etc), then an enterprising lender could find that out, and thus get the business from those people at a lower interest rate. This would be a form of arbitrage - they will steal marketshare from another lender who is unwilling to lend at the lower rate.

xwdv 3y ago

The only reason we don’t take race as a factor in credit scores is because it is illegal, not because it wouldn’t lead to more optimized outcomes. If members of a certain race consistently don’t pay debts in a way that is statistically significant, then it would be prudent to lend to them at higher interest rates due to perceived risk. Sounds racist, but reality has no obligation to conform to our ideas of racial equality. Races can develop habits and cultures amongst themselves that produce certain emergent behaviors. I think arguing against this just makes you seem naive. In the above example, you are more than welcome to ignore race and lend money to everyone at the same interest rate regardless of race, but I predict you will see worse returns. Reality is what still exists even if you close your eyes and ignore the data.