Economic and Normative Implications of Algorithmic Credit Scoring

Commercial use of artificial intelligence (AI) is accelerating and transforming nearly every economic, social, and political domain. Yet, academic commentary on algorithmic decision-making in financial services has warned that historical data could result in biased algorithmic tools.[1] Bias, among other risks, is an essential consideration. However, there is a gap in recent literature on the potential optimal outcomes if risks are mitigated. Algorithmic credit scoring can significantly improve banks’ assessment of consumers and credit risk, especially for previously marginalized consumers. It is, therefore, helpful to examine the commercial considerations often discussed in isolation from potential normative risks.

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