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Mathematician Says Big Data Is Causing a ‘Silent Financial Crisis’

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Re: Mathematician Says Big Data Is Causing a ‘Silent Financial Crisis’

#71

Post by yummyfajitas »

lmm wrote: post #58
yummyfajitas wrote: post #51

Earlier quoted context omitted.

In most fields of human endeavor you do have an objective function better than "do what humans do". Mortgages are very specifically an area where you do. First of all, there is historical data. Second of all, you can backtest well before 25 years. A couple of weeks ago I wrote a blog post explaining specifically how to make measurements in the presence of delayed reactions - I'm discussing a situation involving senso…

There's no historical data on the default rates of people who didn't get mortgages, because they didn't get mortgages. I'm willing to believe that theoretical solutions exist. I know from direct personal experience in the big data/lending industry that they are not always applied. If you are claiming that real-world lenders never train their models on human decisions then you are simply wrong. Nice zinger - I hope yo…

Sure, but there is plenty of historical data on people who marginally got mortgages. If those people are solidly profitable, as opposed to marginally profitable, you try a marginally more expansive lending criteria.

I.e., if I know f(0) = 10, f(1) = 9, f(2) = 8, but I don't have data on f(3), it's worth running a bit of an experiment to see if f(3) is actually 7.

(I happen to know from experience I can't talk about that this analysis is regularly done, albeit keeping the Lucas Critique in mind.)

I don't claim that real world use of ML is perfect. I claim that "bias" (in the sense of making wrong decisions due to race) is a statistical problem and the solution is simply better algorithms rather than Cathy O'Neil's statistical nihilism.

Re: Mathematician Says Big Data Is Causing a ‘Silent Financial Crisis’

#72

Post by burgreblast »

kaitai wrote: post #55
bko wrote: post #40

> [algorithms] decide who gets access to credit and who pays higher insurance premiums, as well as who will receive online advertising for luxury handbags versus who’ll be targeted by predatory ads for for-profit universities. As opposed to what? Subjective decisions made by humans based on biases and personal preferences with no semblance of reason or fairness? > for example, who lives in an area targeted by crime f…

You jumped immediately to an assumption of higher crime in the neighborhood, while the article pointed out the existence of white-collar crime in other neighborhoods. An interesting similar practical application was differential sentencing for drug dealing outside versus drug dealing inside. White and black Americans use illegal drugs at essentially the same rate, with white Americans pulling ahead in several categor…

I'm struggling to find your solutions appealing.

Your answer for addressing indoor drug dealing is to not arrest outdoor drug dealing when you see it?

Allow stealing meat because somebody else got away with scamming?

We disallow theft because theft-free is a better way to live. We have decided that scamming your investors is also punishable as fraud.

Don't throw up your hands as if these are impossible issues. Live life and make your decisions to build your community into the places where you want to live.

Re: Mathematician Says Big Data Is Causing a ‘Silent Financial Crisis’

#73

Post by scatters »

marcosdumay wrote: post #27
scatters wrote: post #21

Earlier quoted context omitted.

> patrolling the street in front of an office building isn't the least bit effective against white collar crime. Do you have any sources for this assertion? Have there been any studies?

Do you have any counter anecdote to the assertion? Because nobody will make a study to verify that the sky is blue if there isn't at a minimum some dissenting opinion.

If increased police presence works to deter violent crime, why wouldn't it work to deter white-collar crime likewise?

Re: Mathematician Says Big Data Is Causing a ‘Silent Financial Crisis’

#74

Post by anoplus »

Big data has the potential to create either unprecedented equality or inequality. Transparency is a key word in this post (I often Ctrl+F to see how many matches for "transparen" I see in this type of posts).

When it comes to software, one policy to make things more transparent is open-sourcing. The question is opening what and to what degree. I feel strongly that organizations today could and should be much more open and are instead absurdly opaque.

It's our responsibility as a society to talk about transparency as key for trust and equality.

Re: Mathematician Says Big Data Is Causing a ‘Silent Financial Crisis’

#75

Post by thaw13579 »

yummyfajitas wrote: post #33
sitkack wrote: post #28

If we train a mortgage engine on Redlining [0] data, it will then red line. Algorithms are not somehow "fair" because there isn't directly a human in the path. They are as "human as we are" but only proxy and at much lower fidelity. Not to Godwin the thread ... but big data has been used for immoral purposes since well, big data [1]. The even larger danger, is that people who don't know better, will simply "train a m…

This is simply not true. If we train a mortgage engine on redlining data, it will only reproduce the red line if it's predictive. I.e., the algorithm will only reproduce the red line if the red line is statistically valid . I discuss this in detail here, with numerical examples: https://www.chrisstucchio.com/blog/2016/alien_intelligences_... The fact is that machine learning takes biased inputs and produces unbiased…

I appreciate this analysis, but it's important to note that not everyone wants unbiased model output. Historically, redlining was intentional, and it took laws to stop it. A major risk of automating mortgage engines is that redlining could easily be reinstated (in the form of model parameters) in a way that is both hard to detect and easily deniable.

Re: Mathematician Says Big Data Is Causing a ‘Silent Financial Crisis’

#76

Post by ramblenode »

An interesting point touched on in the article is the extent to which feedback from a predictive algorithm contributes to its later predictions being biased. If police are targeting a specific neighborhood because it is flagged as being a high crime area, then there is likely to be a higher arrest rate for innocent people too, i.e. a higher false positive rate. Unless there is a good way of differentiating false and true positives (which seems unlikely in a justice system heavily focused on plea bargains), then a cycle of over-policing may ensue. A good predictive algorithm would need to account for this type of temporal autocorrelation.

Re: Mathematician Says Big Data Is Causing a ‘Silent Financial Crisis’

#77

Post by burgreblast »

macintux wrote: post #70
burgreblast wrote: post #62

Earlier quoted context omitted.

> petty offences (which practically everyone commits with > some non-zero frequency, This isn't Josef K in Kafka's Der Process. Most people don't have any trouble avoiding arrestable behavior. Lawlessness is not a virtue. >ignorance of suffering Ads for bad for-pay universitites are good to remind us of... suffering? And sorry, but even "awareness of suffering" isn't virtuous either. It's what you DO about what you k…

> Most people don't have any trouble avoiding arrestable behavior. I think we've pretty well established the past couple of years that there is no lower bound on what's considered "arrestable behavior" when it comes to minorities in the US.

>there is no lower bound on what's considered "arrestable behavior"

Really? I wouldn't throw in the towel.

If there's corruption, that's still a crime. Why not figure out how to highlight it and stop it?

When you find bugs in your code do you throw up your hands and proclaim that it could be anywhere so it's too hard to find and fix?

Do you not fix the easy-to-see bugs because that's somehow unfair? Do you not fix the harder-to-find bugs becuase your biased?

You make the software operate according to your vision and purpose. You and go out of your way to ensure order and correctness.

No need to shrug off harder-to-solve social issues as impossible.

Re: Mathematician Says Big Data Is Causing a ‘Silent Financial Crisis’

#78

Post by chendies »

anoplus wrote: post #74

Big data has the potential to create either unprecedented equality or inequality. Transparency is a key word in this post (I often Ctrl+F to see how many matches for "transparen" I see in this type of posts). When it comes to software, one policy to make things more transparent is open-sourcing. The question is opening what and to what degree. I feel strongly that organizations today could and should be much more ope…

Transparency of pricing models does not immediately result in better outcomes for consumers. In some cases, it may actually result in worse outcomes.

Consider when there are few companies within an industry, like rare metal mining. If they chose to use the same, open-source pricing model, and any changes to that pricing model would be reflected by all companies, the optimal pricing model would be to price at the monopoly level -- to raise the price to where it would be if there were no competition and a single firm in the marketplace.

In the case of lending, however, different firms have different levels of risk acceptance. Many firms (big banks) avoid high-risk borrowers. A few firms (pay-day lenders) are willing to lend to those borrowers, but only at a high interest rate. Somewhere in the middle is a collection of scrupulous lending opportunities.

Any regulation that would restrict the acceptable interest rates to a narrow band would reduce not just the (unscrupulous) loan sharks but also the banks lending to high-risk customers.

This would necessarily result in loss of borrowing ability to those labeled "high-risk".

Is this a desirable outcome? Maybe, maybe not. But it should certainly be discussed.

Re: Mathematician Says Big Data Is Causing a ‘Silent Financial Crisis’

#79

Post by visarga »

ramblenode wrote: post #76

An interesting point touched on in the article is the extent to which feedback from a predictive algorithm contributes to its later predictions being biased. If police are targeting a specific neighborhood because it is flagged as being a high crime area, then there is likely to be a higher arrest rate for innocent people too, i.e. a higher false positive rate. Unless there is a good way of differentiating false and…

> If police are targeting a specific neighborhood because it is flagged as being a high crime area, then there is likely to be a higher arrest rate for innocent people

Police officers could be employed to periodically monitor a sample of the AI outputs and rate them. Humans can still be in the loop, just not at the lowest level of the loop. I'd have much more confidence in an AI that passes the tests and is independently monitored by humans, than in individuals taking the same decisions. An AI would be much more balanced, informed by more examples and tested to check its biases. Humans can always invoke discretion to justify their choices.

Re: Mathematician Says Big Data Is Causing a ‘Silent Financial Crisis’

#80

Post by Chris2048 »

scatters wrote: post #73
marcosdumay wrote: post #27

Earlier quoted context omitted.

Do you have any counter anecdote to the assertion? Because nobody will make a study to verify that the sky is blue if there isn't at a minimum some dissenting opinion.

If increased police presence works to deter violent crime, why wouldn't it work to deter white-collar crime likewise?

It doesn't deter violent crime, it deters street crime, some of which is violent.

How much white-collar crime occurs on the street? Even violent crime off the street won't be helped much by street patrols.

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