When I finally get a handle on my credit score, they have to come in and make my facebook profile another factor.... Next it will be my sleeping patterns, because some article somewhere said that sleeping patterns determine your likeliness of paying your bills on time.
And driving patterns and browsing patterns and places you frequent and type of drinks you consume and job history and exercise frequency and weight and what you watch on TV and stool sample and reddit karma and sperm count and number of icons on your desktop.
"Dear insurance companies, I'm shopping for a policy. Please fill out this bid form so I can verify your business history, tax compliance, carbon footprint, employee demographics, political contributions..."
Hmm, since I'm female, I'm a little worried my sperm count might be low... I do have plenty of icons on my desktop though. Do you think that will help?
Check again, this has nothing to do with your FICO, it's about some companies who are lending to people who don't have that sort of credit score, or another that is lending to small businesses that can add social media to FICO in their decisions:
"Borrowers grant Kabbage access to their PayPal, eBay (EBAY, Fortune 500) and other online payment accounts, disclosing real-time sales and delivery information. The company says it can determine a business' creditworthiness and put money into its account in just seven minutes.
Once a small business is getting credit from Kabbage, it also has the option to link up its Facebook and Twitter accounts to the site, which could provide a bump in its "Kabbage score." The small businesses that do are 20% less likely to be delinquent on their loans, Golin said."
The article's real title is a lot better, although still link baity: "Facebook friends could change your credit score"
This is more to do with people who don't have traditional indicators for credit scores, rather than throwing away everything else.
The Economist covered it a while back in developing nations - if your credit score suffers because of a friend you can exert social pressure on them to pay back the loan. You don't want to be known as a deadbeat to your friends so you are less likely to take out a loan you can't afford.
Though in that example the social network is an explicit opt-in I believe.
There is most likely an informal 'friends of friends' effect for the wealthy and priviledged in any event. Take a look at, for example, the VC market and its extensive reliance on private, pre-existing relationships. While equity is not credit, the techniques of investment selecetion (both deal generation and screening) are at a macro level shared elements. Now, the more concerning issue is when poor people are flagged as at risk because they are poor. Sort of the reverse of the well connected wealthy people getting a helping hand.
> Kreditech can determines your location and considers creditworthiness based upon whether your computer is located where you said you live or work.
Um... How does it determine your location? Your IP address? Cause that's really a good indication of where your computer is physically located. Hint, our work traffic is routed through company headquarters halfway across the world before reaching Kreditech's website. Now Kreditech thinks I am lying about where I am located. Great.
If ever there was a time for the HN mods to change a title, I would think this sort of article would be a good choice. That said, even the original article title ("Facebook friends could change your credit score") is just flat out wrong. Your "credit score" - as in your FICO score, for example, has nothing to do with Facebook/Twitter/etc. The article is a good expose on what other data that companies are using in addition to your credit score. The title is just for link-bait reasons, nothing else.
I'd say this is an example of a title that, while technically wrong, is ethically fine - well, maybe not quite, as it's wrong, but it's wrong for the right reasons.
I doubt anyone cares about their credit score for the sake of the official number of their credit score, people care about it because of what it means when you want to buy a house, or take out a loan, or sign a mobile phone contract. If Facebook friends affect these things negatively (or positively), then I don't care whether it's because they change my credit score, or because everyone looks at these things as well as my credit score, either way it has the exact same effect.
Car and house purchases use a slightly different metric to determine your creditworthiness, acc. to the dealership where I got my car. Essentially, cars and houses are material objects that can be repo'd far more easily if you don't make your payments.
Personally, I'd be happiest if I had a credit score of zero or whatever the number indicating non-existence is these days.
This is the first I'm hearing of it, but assessing credit risk based on social profiles is almost definitely illegal. Conclusions based on friends or location rather than actual history will have a disparate impact on minorities.
That seems to have to do with employment practices.
The article is talking about a private company using publicly available data as a factor in determining whether or not to extend a loan to you. I think it's kind of shitty, but I don't know that it's any different than say using gender as a factor.
If gender is predictive of higher/lower risk for a particular policy, then banning its use seems bizarre. It makes even less sense if the the insurance company is allowed to consider other factors that are correlated with gender (e.g., age, profession).
If it were illegal for all companies, you could probably assume each company would have approximately an equal number of men and women. They could charge the men and women the same price - the average of the old men's and women's rates. The income would be the same.
The case that can be made for banning such a practice is that gender doesn't determine higher/lower risk, it's just associated with it. There's nothing about gender in an of itself that makes you drive badly, even if 80% of women get together at a secret meeting and agree to drive badly. In that case, the 20% would be suffering discrimination purely because of their gender.
>It makes even less sense if the the insurance company is allowed to consider other factors that are correlated with gender (e.g., age, profession).
>There's nothing about gender in an of itself that makes you drive badly, even if 80% of women get together at a secret meeting and agree to drive badly. In that case, the 20% would be suffering discrimination purely because of their gender.
Look at it the other way around. By not taking it into account, 100% of men would be suffering because of the 80% of women.
In any case, this isn't any different with all other factors. Age and profession for example. There are really good 16 year old drivers, why should they have to pay higher insurance? By your logic making any predictions is wrong if they aren't 100% accurate. Gender is just a subcase.
Making any decision with the potential to damage society and perpetuate class divisions, without 100% accuracy, is wrong. Because human lives are more important than maximizing profit.
>Making any decision with the potential to damae society and perpetuate class divisions
Nothing about this damages society or perpetuates class divisions and I haven't the slightest idea where you got that from. We aren't talking about arbitrarily discriminating against a group of people, but charging them slightly more because they cost slightly more. Or less. And for the most part, other factors like past history and the like will vastly outweigh that information, unless you actually believe it makes a difference. In which case why shouldn't it be used?
>Because human lives are more important than maximizing profit.
This is the stupidest expression going around the internet. Obviously human lives are more important than maximizing profit (well not so obviously, as almost everyone risks their own lives and often the lives of others for money and convenience. Driving cars for example.) This adds nothing to the conversation except to make it seem like the other side is against human lives which obviously aren't. No one has ever said "maximizing profit is more important than human lives."
>There's nothing about gender in an of itself that makes you drive badly, even if 80% of women get together at a secret meeting and agree to drive badly.
It's interesting you've assumed that it's the women who are paying the higher premiums. Contrary to the stereotype about women being bad drivers, it's men who pay the gender premium on car insurance.
Solution: market your insurance the way they marketed Virginia Slims. Send the message that "only women use this insurance". Then you can pocket the savings from having a less risk-prone clientele.
As has been pointed out, it's not illegal when it comes to insurance. I'm not sure it's illegal when it comes to lending.
Honestly, I'm a little confused by some of these equality laws. I'm pretty sure that the law can't compel you to make a loan you don't want to make, whether there is a good reason on not. I think you just can't say the denial was for a racial reason or gender reason or whatever. But even if those things were at the heart of your decision, so long as you don't say it, is that even illegal?
And in this case, I'm talking about private companies who don't have connection to US government. (ie: I think if you're government ensured or whatever, they have more power to compel specific behavior.)
> But even if those things were at the heart of your decision, so long as you don't say it, is that even illegal?
Yes, absolutely.
If you want the right to set up a business to serve the people of the nation, the people have decided that you can do so, so long as you serve them without regard to color, gender, etc.
Our forefathers made these laws because they saw that given the opportunity, entities with a profit motive will pursue profit over all else, to the detriment of society as a whole.
It was seen that when discrimination occurs, society as a whole suffers.
I don't want my neighbor to go broke and let his house fall apart because he married a black woman from a hellhole in detroit.
"Our forefathers made these laws because they saw that given the opportunity, entities with a profit motive will pursue profit over all else, to the detriment of society as a whole."
Half of our "forefathers" built fortunes on the backs of slaves. They got plenty of other things right, but many of them missed the mark on racial and gender equality.
I'm guessing that you misread forefathers as "founding fathers", but still, you're giving greater credence to my argument.
In abolishing slavery, lawmakers in 1865 made it clear that regardless of how profitable slavery was for slave-owners, it was bad for mankind and would not be tolerated.
They take average paying morale in a neighborhood into account. But I guess one very bad seed can spoil pull down a otherwise good/average neighborhood.
All the more reason to open a private mailbox and conceal your real address from banks, employers, and when making purchases. Also, since I live outside of the city, shipping is cheaper too. I doubt the UPS store has a bad credit rating.
The original post sounded like they were renting, so yea, your mortgage holder knows the address of the house you bought, but your bank does not need to know the address where you are renting. A personal mailbox is not going to shield your private address from every entity, but it can help with many. Also, the mortgage holder does not know if you are still living in that house, especially if you list a different address.
That's very strange. IMO, it might make sense to operate on the "Folks with bad credit tend to cluster" intuition for folks who have no established credit history, seeing as how you don't have any other data on them. However, it makes no sense to do this for people who have an established track record. I'm sure as hell not going to stop honoring my financial obligations just because I moved into a building with some deadbeat debtor (or worse, just because the debtor moved in to the building!).
Do these creditors think that people have the moral fortitude of five-year-olds?!
They want to make as many loans as possible. The want to loan you money or grant credit. But if they find a correlation that indicates too much risk they'll say no.
The questions then are, is the correlation real, and is doing the correlation legal in the local jurisdiction.
Maximizing expected value. You make more profit even when you take into account all the false positives.
Profiling people (who have nothing to hide) gives banks and insurance companies huge advantage. It may look insane in personal level, but there is solid math behind many of their descisions.
Sometimes utility companies require a deposit before turning on your utilities at a certain address, I'm sure it is because they have had non-paying customers at that address before.
that happened to me. i was in great standing with my electric company (DTE, I've never missed a payment in the last 10 years) but because the previous tenant had not paid their bill, not only did i have to prove i was a new tenant, i had to put a huge deposit down.
Yep, me too. It sucked, cause moving just doesn't have enough expenses already. Apparently my great credit score is meaningless, more important was the previous tenants were deadbeats.
Morgan Spurlock also had to pay a deposit in his show 30 Days, and he commented about how it was the first time in his life he had to pay a deposit, and it must have been the address he was living in. (He was living with a minimum wage for 30 days in the episode, so he moved into a low rent apartment in Ohio.)
That's not what redlining means. Redlining is when you discriminate against people based on where they live (or in where your loan will let them live), not on who they live with.
> Redlining is when you discriminate against people based on where they live
Reread the comment. It's exactly what you describe, down to the actual building. People living in a particular apartment complex can't get a credit card.
Why do you think banks deny credit for areas? Because they don't like the geographical layout? Because that river throws off their feng shui? Or is it because a large number of people living nearby have defaulted or are predicted to default on a loan?
In my opinion, in the U.S. such practice represents a clear commercial intrusion upon the First Amendment right of free association. And I hope that any and all companies that practice it are sued into oblivion. I have zero tolerance for such behaviour.
Our society does better when we communicate with each other. As in, "united we stand, divided we fall".
If we are not to turn entirely into a perpetual exercise in "pecking order", there have to be some limits upon what can be "punished" -- commercially or otherwise.
So, take your "social network credit risk" and shove it.
The Constitution and its amendments are designed to protect citizens from the government, not from private corporations. There may be other laws preventing this sort of credit reporting, but the Constitution does not.
"...in Pembina Consolidated Silver Mining Co. v. Pennsylvania - 125 U.S. 181 (1888), the Court clearly affirmed the doctrine, holding, "Under the designation of 'person' there is no doubt that a private corporation is included [in the Fourteenth Amendment]"
huh? All that says is that corporations enjoy the same protections from government that people do. It doesn't say anything about protecting people from corporations.
What is wrong with using data to make more accurate predictions? Why does it matter where the data came from? That's their job, to make accurate predictions about how likely people are to pay back a loan. This benefits everyone. Interest rates will be lower and more accurately reflect the risk.
If I had a time machine and could go to the future and see who would pay back their loans and who wouldn't, that would be ideal. But we don't have that, we can only make predictions by looking at data that happened to correlate with that in the past.
Because you hose people who are not actually high-risk but, for whatever the reason, chose to hang out with people who are high-risk. This is not really a socially acceptable thing to do, because you are effectively punishing those individuals for their choice in friends. While the First Amendment may not apply here, I'd say most people value the spirit of "freedom of association" and thus I expect it to have been applied elsewhere.
I wouldn't equate not giving someone a loan because they are at high risk as "punishment". But anyways it's just a data point. Why does it matter what the data point is, if it helps make more accurate predictions?
No it's not socially acceptable to use certain data points to make decisions, but this has good justification behind it. People will irrationally weigh stuff like race or gender to make decisions even when it doesn't matter. But this is being done by a completely unbiased computer program. And they wouldn't use it if it made their predictions worse. So that reasoning of the predictor being irrational doesn't apply in this case.
I highly doubt they would intentionally make their models more inaccurate to reflect their own biases. Machine learning algorithms are pretty unbiased as far as weighing the correlation of specific features goes.
Probably you have never seen Bayesian modeling in action. It doesn't care what data you throw at it, it will establish models out of it. The theory IS neutral.
True, there is a downside for people who are at higher risk of not paying back the loan. But that's the entire purpose. If everyone has to pay the same interest rate, less people can afford loans and those that do have to pay to make up for all the others that don't pay their loans back. The economy can suffer indirectly as well, so it does affect everyone.
People aren't "at risk" of defaulting. Either they have, or they haven't. Risk is entirely a calculation of the lender, and any miscalculation thereof leads to a vicious cycle of repeatedly shafting the unlucky.
>People aren't "at risk" of defaulting. Either they have, or they haven't.
Past history correlates with future performance, but not necessarily 100%. People who have always paid back loans sometimes default. People who have really bad credit sometimes start making payments again. And in any case, it's entirely useless if the person has no past history to look at, which is what this is for.
>Risk is entirely a calculation of the lender, and any miscalculation thereof leads to a vicious cycle of repeatedly shafting the unlucky.
Good thing we are using 21rst century computers and machine learning algorithms on vast amounts of data. At no time in history were lenders able to make predictions so accurately. If there are miscalculations, they are less than would be otherwise.
So are you saying that if being black is correlated with a lower rate of loan payback, that is a fair indicator for raising their interest rate? It's not clear to me where you think the line should be drawn, if at all, given a strong correlation.
Yes. It's a data point. It's no different than taking into account their job, past history, age, gender, etc. We aren't talking about humans being irrational like "I hate black people, so I am going to charge them more or refuse to do business with them", but rather an unbiased computer algorithm that is simply improving it's ability to make predictions. What data it uses to do that doesn't matter.
That clearly makes sense economically, and I know this already exists (car insurance, for example), but I don't think many people would agree with this on a social level. A security camera with great AI might only follow the black people in a crowded store because it makes sense statistically. But putting people at an unfair disadvantage for what they can't control is a slippery slope.
No I don't think people are comfortable with it, but it's silly. It's not putting people at an unfair disadvantage any more than predicting using stuff like age or past history. If you are going to be do predictions at all it's pointless to exclude data that could make them more accurate.
Because you introduce pressure to separate members and different "elements" of a community. And to further segregate e.g. geographical communities. (Not that there isn't already plenty of pressure for the latter.)
Perhaps I'm naive, but I hold to the... philosophy, I guess I'll call it for the moment, that most people want a strong community. And that that is aided by people being in touch with each other, including and especially people of different social and economic strata.
Take this proposed ranking to its extreme: You will have people who are ostracized and who perhaps cannot become "un-ostracized" because connecting with them forms not only perhaps a personal risk but also a commercial risk for other parties.
Some societies have versions of this, for example, the caste system.
How "mobile" are people going to be, when every "up-link" to someone of higher standing is cause for a computer somewhere to drag down the status of the up-linked.
We also have problems of this sort in the U.S. with our insurance industry -- I'm thinking at the moment particularly of health insurance. Insurance is supposed to be a pooling of risk and of resources with which to deal with that risk. If you don't take out as much as you put in, count your blessings! You have above average health.
If you need help, it is there for you. "I am my brother's keeper."
In times past, we knew less about diseases. You knew less about what might "get you" and where it was coming from.
These days, we know (somewhat -- less than some arrogant doctors would like you to think) more about diseases. We think we can control some factors -- diet and exercise being prime examples.
We still have to contend with injuries, including injuries that we do not cause, such as some car accidents.
And... your control of "controllable/willpower" factors may be less than some people would think. Live in a "food desert", and fresh produce may be difficult to acquire. Live in certain places in my metropolitan area, and an evening walk for exercise presents its own not inconsiderable risks.
Nonetheless, many people these days seem included to think of insurance as akin to a savings plane. You should get out what you pay in. If not, you're being ripped off!
That's not how it works. That's not how it's intended to work.
Back to social media and risk evaluation. Do I, should I have to evaluate every potential connection for the economic risk it may bring me?
We are close to having ubiquitous surveillance cameras (including ultra-high resolution airframe mounted cameras that can track a vehicle or even a pedestrian across an entire city). Do I have to worry that every chance encounter and conversation on the street may effect not just my political and security rating but also my economic rating? Talk to that bum asking for change, and your credit score goes down 50 points. Ok, you can talk to him/her for a maximum of 20 seconds; any longer, and we will think you have an "un-natural" "affinity" for such a lifestyle.
Bankers can't "red line" in making mortgage loans. Schools (including private ones) can't deny admission upon the basis of race -- nor, in some states, upon sexual preference.
We constantly place limitations upon the scope and focus of commercial evaluations. Social media is a landscape that will have to be dealt with, in this regard.
>Do I, should I have to evaluate every potential connection for the economic risk it may bring me?
Yes you are right there is an incentive problem created by this. Once you start measuring something, people start trying to game the measurements. That said, no one is forcing you to make such decisions, or even go to a business that uses such evaluations.
>Bankers can't "red line" in making mortgage loans. Schools (including private ones) can't deny admission upon the basis of race -- nor, in some states, upon sexual preference.
>We constantly place limitations upon the scope and focus of commercial evaluations. Social media is a landscape that will have to be dealt with, in this regard.
Yes but the intention of those laws are to stop irrational bigotry. Like someone who hates some group and refusing to do business with them because they want to punish them or whatever. We are talking about an unbiased computer algorithm that just weighs the data and uses it to make more accurate predictions. That's the goal, to make accurate predictions. The data used doesn't matter.
I'm wondering how many of the factors are based on things that can be identified from photos. You can probably get some very strong (and useful to lenders) criteria from photos, and yet be treading very dangerous water with regards to discrimination.
Cool, cool. Cool, cool, cool. So now who gets to build a facebook-based credit score optimization app. Buy and sell your friends so you can buy a house/get a job.
Not necessarily. Say you both have the same credit score. If you befriend eachother, that reduces the negative impact of friends with lower scores for both of you, by reducing their overall weight.
this could have the potential to break the concept of facebook (though it has managed to do much of the damage on its own) in that it makes you unfriend people so you don't have a negative mark, and add friends you don't like or socialize with, and force you to talk to them, just to help your chances at a loan... seems like the only facebooks true purpose will be lost
So? Why shouldn't someone be able to use public information to publish their own ratings of your credit worthiness?
Nobody has to trust the popular credit rating agencies, and people are free to make their own ratings/certifications or start their own companies that do so (unless the government prevents that... which if so, is a problem with government not the rating agencies.)
This is not question of credit ratingt agencies getting wrong results. They use these systems because they work. Big number of false positives is just collateral damage. Maximizing expected value is what banks and insurance companies want. It's like poker, you don't play to win every hand, you play to get more money.
Nobody really wanted their entire social network to be public; Facebook kind of removed the option. Even those who think they have nothing to hide don't want this.
This is what I'm worried about way more than NSA spying: the potential for companies using Facebook data and data in your GMail, and the like, to screw you. This is where the real money is. I've had several friends who had trouble with background checks for jobs because they had collections on their credit score and the like. The ridiculousness of it: people hindered from improving their financial situation because of their past financial situation.
People will likely freak out about this but I don't see anything wrong with it. Making more accurate predictions is a good thing. Why does it matter what the data used was?
Unfortunately I expect this to become another "illegal datapoint" that is illegal to take into account. People hate the idea of being judged for seemingly arbitrary things. Which makes sense. But if it actually does correlate with the truth, if it actually makes predictions more accurate on average, why shouldn't it be used?
But if it actually does correlate with the truth, if it actually makes predictions more accurate on average, why shouldn't it be used?
Because statistics.
Correlation applies to populations of data points, not individual data points. Even if 99% of the data points have a certain feature (an extremely strong correlation), the 1% of outliers should not be penalized for being similar to the rest of the group in other ways.
But this is an argument against making any kind of predictions at all, as it could negatively affect some individuals. I don't see why that should be so, especially if it positively benefits everyone else a lot more and is a net benefit. For every person that loses one dollar, 500 people gain 50 cents.
To look at it another way, by not taking that data into account, you are making those 500 worse off. I don't see how that is preferable.
If we had a time machine to go into the future and see what loans would be paid back and which ones wouldn't, that would be ideal. But we can only guess. If our guesses aren't 100% accurate, are we saying we shouldn't try at all?
this is an argument against making any kind of predictions at all, as it could negatively affect some individuals.
The question we ask is, what is this prediction based on? Some things are sacred; we will not allow predictions to be made based on race or gender, but we will allow predictions to be made based on billing history. The latter is much more within an individual's control than the former!
It's not always under an individuals control. Things happen outside their control so they can't pay back their loan. In insurance, getting into an accident isn't always the persons fault and we still use it to determine their rates.
Why should some predictors should be considered "sacred"? The point is to make the best predictions possible. It doesn't really matter what information is used to determine that.
>Some predictors must be sacred because relying on them reinforces divisions in society, leading to greater long-term unrest.
Even using something objectionable like race as a predictor wouldn't "lead to long-term unrest", just the potential of slightly higher and lower interest rates for different individuals. There is no "reinforcing divisions in society". If anything more accurate predictions benefit society with less risk for investors and lower interest rates for borrowers.
Society isn't a one-shot system; it's iterative with feedback. When you apply a slight bias in interest rates to different parts of the population in one iteration, then feed those results into the next generation, those segments of the population paying slightly higher interest rates now have slightly less cash and slightly fewer opportunities. Repeat this for a few generations, and you have inescapable poverty on one hand and nearly unassailable wealth on the other.
There are far greater forces at work that determine how people end up than small differences in interest rates. In any case it's not my fault if some population is worse at paying back their loans, why should I have to subsidize them? Or why should others have to subsidize me?
The past is not your fault, but the future might be. The world will be an even more screwed up place if everyone takes your attitude and only cares about their own bottom line.
Here's why: "Hi, I can't be friends with you on Facebook/Twitter/Google+ because although you've been a really great friend to me, you lost your job last year and it's had a bit of a dent on your credit history." -- or -- "Hey, I don't want to add you to Facebook because I don't know how well you pay your bills."
(This isn't a real issue for me because, like the nouveau cool, I deleted my Facebook.)
Yes, you could argue the person doing the digital ostracizing is a craptastic piece of shit, but the criteria for friendship shouldn't be creditworthiness. If I had to eliminate otherwise good friends (or funny acquaintances) because I know they've had problems paying their bills, I'd not be a happy bunny. It's trite to highlight this, but credit scores impact all kinds of things, from interest rates, availability of financial products, ease of getting a merchant account, and apparently, how easy it is to get certain jobs.
Where does it end? Phone records? Emails? Chat logs? Who you Tweet with most? CCTV hooked up to facial recognition software to figure out who you're going to lunch with?
There's nothing good about this and I hope their business fails.
You are right, it could create bad incentives. If that is the case then I will agree with you, but many of the people are arguing that it is inherently unjust to use certain things to make predictions, which makes no sense at all.
I don't think in practice many people will change their friends over this, and this is only one piece of information being used, so it probably wouldn't have a huge effect if they did so.
> many of the people are arguing that it is inherently unjust to use certain things to make predictions, which makes no sense at all
Would it be wrong to judge my creditworthiness by the fact I'm white and gay if you could find some correlation between those traits and bill paying habits? What if white gays were typically irresponsible with money† (because omg shoes) and as a consequence my credit score is forever (or at least initially) tarnished because I'm a white homo, irrespective of my bill-paying ability. I can see many ethical issues with this.
> I don't think in practice many people will change their friends over this, and this is only one piece of information being used, so it probably wouldn't have a huge effect if they did so.
LOL. People will do a lot in the name of money. If Ms. Sally wants a mortgage, like really, really, really bad, Ms. Sally is gonna drop her deadbeat Facebook friends and game the fuck out the system. If she's successful, not only is she more likely to be approved for that mortgage, but she'll get a better rate. I think it's naive to believe that any other behavior is being encouraged by this kind of predictive credit scoring.
When people figure out how to game a system, they tend to do so. Such signals would quickly be rendered useless, unless you could effectively figure out who is gaming the system, and how hard.
>Would it be wrong to judge my creditworthiness by the fact I'm white and gay if you could find some correlation between those traits and bill paying habits? What if white gays were typically irresponsible with money† (because omg shoes) and as a consequence my credit score is forever (or at least initially) tarnished because I'm a white homo, irrespective of my bill-paying ability. I can see many ethical issues with this.
Yes it seems wrong, but why does it matter what the data is if it's being used to make more accurate predictions? That's the goal. The data being used makes no difference. We aren't talking about humans which are irrational and go "omg I hate gay people and want to make them worse off by refusing to do business with them", this is an unbiased computer algorithm looking to predict how likely you are to pay back your loan. If you really are less likely to pay back your loan than so be it. It can just as easily go the other way and judge in your favor. On average you should expect to benefit from such a policy, not lose from it.
>LOL. People will do a lot in the name of money. If Ms. Sally wants a mortgage, like really, really, really bad, Ms. Sally is gonna drop her deadbeat Facebook friends and game the fuck out the system. If she's successful, not only is she more likely to be approved for that mortgage, but she'll get a better rate. I think it's naive to believe that any other behavior is being encouraged by this kind of predictive credit scoring.
It will probably be difficult to game the system (just deleting friends doesn't remove your info and might be a red flag that you are trying to do that.) The benefits are probably small (they are using all sorts of other data on top of it to make predictions about you.) And people don't know what the algorithms are or even what information they are using, which makes it harder to figure out how to game it.
But even if they do so, so what? That's their choice. The models will be readjusted to fit the new data, and the predictions will still be accurate.
Judging my creditworthiness based on the creditworthiness of my peers is akin to arresting me if half my friends had been arrested, or giving me a speeding ticket if a third of my friends had received one in the past year. It might indicate I'm more likely to be arrested or drive too fast, but I shouldn't be punished (or rewarded!) because of what other people do. What if 20% of my friends had abused prescription painkillers and I'd just had surgery. Should I be denied a prescription for painkillers because my social circle had a higher than average incidence of drug misuse?
Put yourself in the situation that you're punished because of your friends' actions, or the actions of people with the same gender, race, or sexual orientation. You'd feel it's unfair (if you're rational) because it is unfair!
In your example that would be preemptive imprisonment if there was a greater than some probability you were a criminal. I don't like the idea of preemptive imprisonment, but if that was the case, then I don't see how adding more data to make the predictions more accurate would be a bad thing.
Same thing with the second example. If there was a 99% chance of you becoming addicted to them, then you probably shouldn't be given pain killers. It would be for your own benefit by avoiding addiction. That's not a punishment, that's a good thing.
>Put yourself in the situation that you're punished because of your friends' actions, or the actions of people with the same gender, race, or sexual orientation. You'd feel it's unfair (if you're rational) because it is unfair!
This is the reasoning why people object to it. Humans have evolved a sense of fairness and unjustness that we react to, and usually it's a good thing that keeps society functioning. However it's an emotional response. There is no rational reason that the world would be better if we just gave loans to everyone at the same interest rate, or if we intentionally excluded useful data points from determining the risk of things.
> In your example that would be preemptive imprisonment if there was a greater than some probability you were a criminal. I don't like the idea of preemptive imprisonment, but if that was the case, then I don't see how adding more data to make the predictions more accurate would be a bad thing.
That position is utterly untenable. It's so obviously wrong to imprison someone because some signals indicate they might commit a crime based on who they're friends with on Facebook! There's a difference between being buddies with a gaggle of career criminals and actually committing (or conspiring to commit) a crime!
> If there was a 99% chance of you becoming addicted to them, then you probably shouldn't be given pain killers.
If that person has a history of abusing painkillers, yes. If their friends do? C'mon, you can't possibly justify that position.
> There is no rational reason that the world would be better if we just gave loans to everyone at the same interest rate
I didn't argue for equal interest rates for all. It makes sense for interest rates are tied to risk, but it's only reasonable to make an assessment of risk based on an individual's performance and ability to pay, not their friends' or peers' performance.
> or if we intentionally excluded useful data points from determining the risk of things.
I'm not sure whether you've thought this through. Let's say, for example, it's determined by someone's payment history that they're not good at managing their money. They learn from their mistakes, improve their payment behavior, and subsequently lower their risk of default. On the other hand, what if it was determined that Asians are more likely to default on their debt. What can you do to stop being Asian? What if gay people were less likely to default on their debt and then irresponsible people who happen to be gay find it easier to get debt? Your thesis breaks down very quickly and I truly struggle to believe you agree with the position you're making.
Neither one of us are making novel arguments now, but thanks for the interesting perspective and debate!
>That position is utterly untenable. It's so obviously wrong to imprison someone because some signals indicate they might commit a crime based on who they're friends with on Facebook! There's a difference between being buddies with a gaggle of career criminals and actually committing (or conspiring to commit) a crime!
I think you are trying to create a straw-man here. Imprisoning people even though they haven't committed a crime is obviously bad, and I completely agree with that. All I'm saying is if we were going to do it, then we might as well try to make the predictions as accurate as possible. If your predictions are more accurate fewer "innocent" people will end up in prison (innocent as in, wouldn't commit a crime if left out of prison.) In your example, less accurate predictions can literally ruin people's lives. Excluding data in that case would be much worse than just for loans.
>> If there was a 99% chance of you becoming addicted to them, then you probably shouldn't be given pain killers.
>If that person has a history of abusing painkillers, yes. If their friends do? C'mon, you can't possibly justify that position.
I don't see why it matters that the data came from who your friends were. It could just as easily come from blood tests or who your parents are, or all sorts of arbitrary things outside of your control. The point is 99% of people with that feature become addicted to the painkillers and it ruined their lives.
If there is a 99% chance of that happening to you, would you take the pain killers? Would you really care where the data came from Would you really ignore information if it was your own life at stake?
>I didn't argue for equal interest rates for all. It makes sense for interest rates are tied to risk, but it's only reasonable to make an assessment of risk based on an individual's performance and ability to pay, not their friends' or peers' performance.
But assessing risk at all puts some people at a disadvantage. It doesn't matter where the data came from, if the predictions aren't 100% accurate then some percent of people are going to wrongly have a higher interest rate, even if they pay back their loan on time.
I think you are thinking of this as an incentive system and not a predicting system. That is it's ok to select for features that people can control, like their past history, but not for things that are outside their control. But the point of interest isn't to reward or punish people for paying or not paying their previous loans back on time. It's just to make up for people that don't pay. The riskier you are, the more it costs to make up for all the other high risk people that didn't pay.
Ideally you just wouldn't give out loans to people who wouldn't pay them back, and would give loans with no interest to people who would. But usually it falls somewhere in between 0 and 100% probability. The goal isn't to reward or punish people, it's to predict as accurately as possible.
All sensationalism, little substance. Particularly regarding the topic of the link-baity title.
> "One such company, Lenddo, determines if you're friends on Facebook (FB) with someone who was late paying back a loan to Lenddo....
No explanation of the what the mechanism for collecting this is. Likely it's a matter of opting in to share your data through a Facebook app, an act whose culpability lies with the consumer.
> "Lenddo has about 250,000 members, but it only operates in the Philippines, Columbia and Mexico."
Um. Ok. Three sem-developed nations. It's journalistically incompetent not to explain what the relevance of those nations are to the operation of Lenddo, and why any of that is relevant to the American general public.
The only thing I learned from this was that CNN Money articles can be remarkably content-farmy and AOL-like, and HN readers can subdue their analytical spirit when it comes to piling on the criticism of an already-hated company (e.g. Facebook).
Title is linkbait. This has nothing to do with your FICO score (what credit score tends to imply here in the US). Only some small startup lenders are doing this.
What a relief, since I deleted most of my facebook friends and left only two people on it. Although, from what I'm seeing, that could be a plus for some of these lenders!
They don't - the startup considers it in addition to the credit score in making their decision. That said, I don't imagine you need a great deal of data to identify most people's Facebook account, not aware of any research into that though.
What's interesting here is that they would Facebook rather than LinkedIn. Perhaps the LinkedIn network will suggest "Can you afford to pay?" while Facebook is "Are you inclined to?" Or perhaps they're targeting low income folks who aren't on LinkedIn?
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[ 4.9 ms ] story [ 225 ms ] thread"Dear insurance companies, I'm shopping for a policy. Please fill out this bid form so I can verify your business history, tax compliance, carbon footprint, employee demographics, political contributions..."
"Borrowers grant Kabbage access to their PayPal, eBay (EBAY, Fortune 500) and other online payment accounts, disclosing real-time sales and delivery information. The company says it can determine a business' creditworthiness and put money into its account in just seven minutes.
Once a small business is getting credit from Kabbage, it also has the option to link up its Facebook and Twitter accounts to the site, which could provide a bump in its "Kabbage score." The small businesses that do are 20% less likely to be delinquent on their loans, Golin said."
The article's real title is a lot better, although still link baity: "Facebook friends could change your credit score"
The Economist covered it a while back in developing nations - if your credit score suffers because of a friend you can exert social pressure on them to pay back the loan. You don't want to be known as a deadbeat to your friends so you are less likely to take out a loan you can't afford.
Though in that example the social network is an explicit opt-in I believe.
Um... How does it determine your location? Your IP address? Cause that's really a good indication of where your computer is physically located. Hint, our work traffic is routed through company headquarters halfway across the world before reaching Kreditech's website. Now Kreditech thinks I am lying about where I am located. Great.
I doubt anyone cares about their credit score for the sake of the official number of their credit score, people care about it because of what it means when you want to buy a house, or take out a loan, or sign a mobile phone contract. If Facebook friends affect these things negatively (or positively), then I don't care whether it's because they change my credit score, or because everyone looks at these things as well as my credit score, either way it has the exact same effect.
Personally, I'd be happiest if I had a credit score of zero or whatever the number indicating non-existence is these days.
http://en.wikipedia.org/wiki/Disparate_impact
The article is talking about a private company using publicly available data as a factor in determining whether or not to extend a loan to you. I think it's kind of shitty, but I don't know that it's any different than say using gender as a factor.
It's now illegal in some nations to discriminate pricing based on gender.
>It makes even less sense if the the insurance company is allowed to consider other factors that are correlated with gender (e.g., age, profession).
Agreed.
Look at it the other way around. By not taking it into account, 100% of men would be suffering because of the 80% of women.
In any case, this isn't any different with all other factors. Age and profession for example. There are really good 16 year old drivers, why should they have to pay higher insurance? By your logic making any predictions is wrong if they aren't 100% accurate. Gender is just a subcase.
Nothing about this damages society or perpetuates class divisions and I haven't the slightest idea where you got that from. We aren't talking about arbitrarily discriminating against a group of people, but charging them slightly more because they cost slightly more. Or less. And for the most part, other factors like past history and the like will vastly outweigh that information, unless you actually believe it makes a difference. In which case why shouldn't it be used?
>Because human lives are more important than maximizing profit.
This is the stupidest expression going around the internet. Obviously human lives are more important than maximizing profit (well not so obviously, as almost everyone risks their own lives and often the lives of others for money and convenience. Driving cars for example.) This adds nothing to the conversation except to make it seem like the other side is against human lives which obviously aren't. No one has ever said "maximizing profit is more important than human lives."
It's interesting you've assumed that it's the women who are paying the higher premiums. Contrary to the stereotype about women being bad drivers, it's men who pay the gender premium on car insurance.
Honestly, I'm a little confused by some of these equality laws. I'm pretty sure that the law can't compel you to make a loan you don't want to make, whether there is a good reason on not. I think you just can't say the denial was for a racial reason or gender reason or whatever. But even if those things were at the heart of your decision, so long as you don't say it, is that even illegal?
And in this case, I'm talking about private companies who don't have connection to US government. (ie: I think if you're government ensured or whatever, they have more power to compel specific behavior.)
http://www.occ.gov/topics/consumer-protection/fair-lending/i...
Yes, absolutely.
If you want the right to set up a business to serve the people of the nation, the people have decided that you can do so, so long as you serve them without regard to color, gender, etc.
Our forefathers made these laws because they saw that given the opportunity, entities with a profit motive will pursue profit over all else, to the detriment of society as a whole.
It was seen that when discrimination occurs, society as a whole suffers.
I don't want my neighbor to go broke and let his house fall apart because he married a black woman from a hellhole in detroit.
Half of our "forefathers" built fortunes on the backs of slaves. They got plenty of other things right, but many of them missed the mark on racial and gender equality.
In abolishing slavery, lawmakers in 1865 made it clear that regardless of how profitable slavery was for slave-owners, it was bad for mankind and would not be tolerated.
http://www.propublica.org/article/disparate-impact-and-fair-...
Here in Germany it's pretty common.
I'm living in an apartment building where it is impossible to get a credit card. It's not only me - all neighbors I asked have the same problem.
Looks like one of our neighbors has a catastrophic credit rating and is pulling down the rest of us.
I heard similar stories from friends who were able to get a loan only after moving.
They take average paying morale in a neighborhood into account. But I guess one very bad seed can spoil pull down a otherwise good/average neighborhood.
http://en.wikipedia.org/wiki/Commercial_mail_receiving_agenc...
https://ribbs.usps.gov/index.cfm?page=mtcsa
(you can also google for dpv cmra)
Image search for "schuldneratlas" (a detailed map of private households in distress) to get some impressions.
Or see there: http://www.boniversum.de/schuldneratlas/
Do these creditors think that people have the moral fortitude of five-year-olds?!
They want to make as many loans as possible. The want to loan you money or grant credit. But if they find a correlation that indicates too much risk they'll say no.
The questions then are, is the correlation real, and is doing the correlation legal in the local jurisdiction.
Profiling people (who have nothing to hide) gives banks and insurance companies huge advantage. It may look insane in personal level, but there is solid math behind many of their descisions.
Morgan Spurlock also had to pay a deposit in his show 30 Days, and he commented about how it was the first time in his life he had to pay a deposit, and it must have been the address he was living in. (He was living with a minimum wage for 30 days in the episode, so he moved into a low rent apartment in Ohio.)
[1] http://en.wikipedia.org/wiki/Redlining
Reread the comment. It's exactly what you describe, down to the actual building. People living in a particular apartment complex can't get a credit card.
Our society does better when we communicate with each other. As in, "united we stand, divided we fall".
If we are not to turn entirely into a perpetual exercise in "pecking order", there have to be some limits upon what can be "punished" -- commercially or otherwise.
So, take your "social network credit risk" and shove it.
"...in Pembina Consolidated Silver Mining Co. v. Pennsylvania - 125 U.S. 181 (1888), the Court clearly affirmed the doctrine, holding, "Under the designation of 'person' there is no doubt that a private corporation is included [in the Fourteenth Amendment]"
http://en.wikipedia.org/wiki/Corporate_personhood
If I had a time machine and could go to the future and see who would pay back their loans and who wouldn't, that would be ideal. But we don't have that, we can only make predictions by looking at data that happened to correlate with that in the past.
Are you saying the machine doesn't actually rank you according to the data you give it?
No it's not socially acceptable to use certain data points to make decisions, but this has good justification behind it. People will irrationally weigh stuff like race or gender to make decisions even when it doesn't matter. But this is being done by a completely unbiased computer program. And they wouldn't use it if it made their predictions worse. So that reasoning of the predictor being irrational doesn't apply in this case.
And I'm sure the program was written by a completely unbiased computer, too!
Everyone?
LOL
Past history correlates with future performance, but not necessarily 100%. People who have always paid back loans sometimes default. People who have really bad credit sometimes start making payments again. And in any case, it's entirely useless if the person has no past history to look at, which is what this is for.
>Risk is entirely a calculation of the lender, and any miscalculation thereof leads to a vicious cycle of repeatedly shafting the unlucky.
Good thing we are using 21rst century computers and machine learning algorithms on vast amounts of data. At no time in history were lenders able to make predictions so accurately. If there are miscalculations, they are less than would be otherwise.
Perhaps I'm naive, but I hold to the... philosophy, I guess I'll call it for the moment, that most people want a strong community. And that that is aided by people being in touch with each other, including and especially people of different social and economic strata.
Take this proposed ranking to its extreme: You will have people who are ostracized and who perhaps cannot become "un-ostracized" because connecting with them forms not only perhaps a personal risk but also a commercial risk for other parties.
Some societies have versions of this, for example, the caste system.
How "mobile" are people going to be, when every "up-link" to someone of higher standing is cause for a computer somewhere to drag down the status of the up-linked.
We also have problems of this sort in the U.S. with our insurance industry -- I'm thinking at the moment particularly of health insurance. Insurance is supposed to be a pooling of risk and of resources with which to deal with that risk. If you don't take out as much as you put in, count your blessings! You have above average health.
If you need help, it is there for you. "I am my brother's keeper."
In times past, we knew less about diseases. You knew less about what might "get you" and where it was coming from.
These days, we know (somewhat -- less than some arrogant doctors would like you to think) more about diseases. We think we can control some factors -- diet and exercise being prime examples.
We still have to contend with injuries, including injuries that we do not cause, such as some car accidents.
And... your control of "controllable/willpower" factors may be less than some people would think. Live in a "food desert", and fresh produce may be difficult to acquire. Live in certain places in my metropolitan area, and an evening walk for exercise presents its own not inconsiderable risks.
Nonetheless, many people these days seem included to think of insurance as akin to a savings plane. You should get out what you pay in. If not, you're being ripped off!
That's not how it works. That's not how it's intended to work.
Back to social media and risk evaluation. Do I, should I have to evaluate every potential connection for the economic risk it may bring me?
We are close to having ubiquitous surveillance cameras (including ultra-high resolution airframe mounted cameras that can track a vehicle or even a pedestrian across an entire city). Do I have to worry that every chance encounter and conversation on the street may effect not just my political and security rating but also my economic rating? Talk to that bum asking for change, and your credit score goes down 50 points. Ok, you can talk to him/her for a maximum of 20 seconds; any longer, and we will think you have an "un-natural" "affinity" for such a lifestyle.
Bankers can't "red line" in making mortgage loans. Schools (including private ones) can't deny admission upon the basis of race -- nor, in some states, upon sexual preference.
We constantly place limitations upon the scope and focus of commercial evaluations. Social media is a landscape that will have to be dealt with, in this regard.
Yes you are right there is an incentive problem created by this. Once you start measuring something, people start trying to game the measurements. That said, no one is forcing you to make such decisions, or even go to a business that uses such evaluations.
>Bankers can't "red line" in making mortgage loans. Schools (including private ones) can't deny admission upon the basis of race -- nor, in some states, upon sexual preference.
>We constantly place limitations upon the scope and focus of commercial evaluations. Social media is a landscape that will have to be dealt with, in this regard.
Yes but the intention of those laws are to stop irrational bigotry. Like someone who hates some group and refusing to do business with them because they want to punish them or whatever. We are talking about an unbiased computer algorithm that just weighs the data and uses it to make more accurate predictions. That's the goal, to make accurate predictions. The data used doesn't matter.
I doubt it, do you have a citation for that?
http://en.wikipedia.org/wiki/Community_Reinvestment_Act
Nobody has to trust the popular credit rating agencies, and people are free to make their own ratings/certifications or start their own companies that do so (unless the government prevents that... which if so, is a problem with government not the rating agencies.)
Unfortunately I expect this to become another "illegal datapoint" that is illegal to take into account. People hate the idea of being judged for seemingly arbitrary things. Which makes sense. But if it actually does correlate with the truth, if it actually makes predictions more accurate on average, why shouldn't it be used?
Because statistics.
Correlation applies to populations of data points, not individual data points. Even if 99% of the data points have a certain feature (an extremely strong correlation), the 1% of outliers should not be penalized for being similar to the rest of the group in other ways.
To look at it another way, by not taking that data into account, you are making those 500 worse off. I don't see how that is preferable.
If we had a time machine to go into the future and see what loans would be paid back and which ones wouldn't, that would be ideal. But we can only guess. If our guesses aren't 100% accurate, are we saying we shouldn't try at all?
The question we ask is, what is this prediction based on? Some things are sacred; we will not allow predictions to be made based on race or gender, but we will allow predictions to be made based on billing history. The latter is much more within an individual's control than the former!
Why should some predictors should be considered "sacred"? The point is to make the best predictions possible. It doesn't really matter what information is used to determine that.
Even using something objectionable like race as a predictor wouldn't "lead to long-term unrest", just the potential of slightly higher and lower interest rates for different individuals. There is no "reinforcing divisions in society". If anything more accurate predictions benefit society with less risk for investors and lower interest rates for borrowers.
(This isn't a real issue for me because, like the nouveau cool, I deleted my Facebook.)
Yes, you could argue the person doing the digital ostracizing is a craptastic piece of shit, but the criteria for friendship shouldn't be creditworthiness. If I had to eliminate otherwise good friends (or funny acquaintances) because I know they've had problems paying their bills, I'd not be a happy bunny. It's trite to highlight this, but credit scores impact all kinds of things, from interest rates, availability of financial products, ease of getting a merchant account, and apparently, how easy it is to get certain jobs.
Where does it end? Phone records? Emails? Chat logs? Who you Tweet with most? CCTV hooked up to facial recognition software to figure out who you're going to lunch with?
There's nothing good about this and I hope their business fails.
I don't think in practice many people will change their friends over this, and this is only one piece of information being used, so it probably wouldn't have a huge effect if they did so.
Would it be wrong to judge my creditworthiness by the fact I'm white and gay if you could find some correlation between those traits and bill paying habits? What if white gays were typically irresponsible with money† (because omg shoes) and as a consequence my credit score is forever (or at least initially) tarnished because I'm a white homo, irrespective of my bill-paying ability. I can see many ethical issues with this.
> I don't think in practice many people will change their friends over this, and this is only one piece of information being used, so it probably wouldn't have a huge effect if they did so.
LOL. People will do a lot in the name of money. If Ms. Sally wants a mortgage, like really, really, really bad, Ms. Sally is gonna drop her deadbeat Facebook friends and game the fuck out the system. If she's successful, not only is she more likely to be approved for that mortgage, but she'll get a better rate. I think it's naive to believe that any other behavior is being encouraged by this kind of predictive credit scoring.
When people figure out how to game a system, they tend to do so. Such signals would quickly be rendered useless, unless you could effectively figure out who is gaming the system, and how hard.
†I'm not advocating this idea.
Yes it seems wrong, but why does it matter what the data is if it's being used to make more accurate predictions? That's the goal. The data being used makes no difference. We aren't talking about humans which are irrational and go "omg I hate gay people and want to make them worse off by refusing to do business with them", this is an unbiased computer algorithm looking to predict how likely you are to pay back your loan. If you really are less likely to pay back your loan than so be it. It can just as easily go the other way and judge in your favor. On average you should expect to benefit from such a policy, not lose from it.
>LOL. People will do a lot in the name of money. If Ms. Sally wants a mortgage, like really, really, really bad, Ms. Sally is gonna drop her deadbeat Facebook friends and game the fuck out the system. If she's successful, not only is she more likely to be approved for that mortgage, but she'll get a better rate. I think it's naive to believe that any other behavior is being encouraged by this kind of predictive credit scoring.
It will probably be difficult to game the system (just deleting friends doesn't remove your info and might be a red flag that you are trying to do that.) The benefits are probably small (they are using all sorts of other data on top of it to make predictions about you.) And people don't know what the algorithms are or even what information they are using, which makes it harder to figure out how to game it.
But even if they do so, so what? That's their choice. The models will be readjusted to fit the new data, and the predictions will still be accurate.
Put yourself in the situation that you're punished because of your friends' actions, or the actions of people with the same gender, race, or sexual orientation. You'd feel it's unfair (if you're rational) because it is unfair!
Same thing with the second example. If there was a 99% chance of you becoming addicted to them, then you probably shouldn't be given pain killers. It would be for your own benefit by avoiding addiction. That's not a punishment, that's a good thing.
>Put yourself in the situation that you're punished because of your friends' actions, or the actions of people with the same gender, race, or sexual orientation. You'd feel it's unfair (if you're rational) because it is unfair!
This is the reasoning why people object to it. Humans have evolved a sense of fairness and unjustness that we react to, and usually it's a good thing that keeps society functioning. However it's an emotional response. There is no rational reason that the world would be better if we just gave loans to everyone at the same interest rate, or if we intentionally excluded useful data points from determining the risk of things.
That position is utterly untenable. It's so obviously wrong to imprison someone because some signals indicate they might commit a crime based on who they're friends with on Facebook! There's a difference between being buddies with a gaggle of career criminals and actually committing (or conspiring to commit) a crime!
> If there was a 99% chance of you becoming addicted to them, then you probably shouldn't be given pain killers.
If that person has a history of abusing painkillers, yes. If their friends do? C'mon, you can't possibly justify that position.
> There is no rational reason that the world would be better if we just gave loans to everyone at the same interest rate
I didn't argue for equal interest rates for all. It makes sense for interest rates are tied to risk, but it's only reasonable to make an assessment of risk based on an individual's performance and ability to pay, not their friends' or peers' performance.
> or if we intentionally excluded useful data points from determining the risk of things.
I'm not sure whether you've thought this through. Let's say, for example, it's determined by someone's payment history that they're not good at managing their money. They learn from their mistakes, improve their payment behavior, and subsequently lower their risk of default. On the other hand, what if it was determined that Asians are more likely to default on their debt. What can you do to stop being Asian? What if gay people were less likely to default on their debt and then irresponsible people who happen to be gay find it easier to get debt? Your thesis breaks down very quickly and I truly struggle to believe you agree with the position you're making.
Neither one of us are making novel arguments now, but thanks for the interesting perspective and debate!
I think you are trying to create a straw-man here. Imprisoning people even though they haven't committed a crime is obviously bad, and I completely agree with that. All I'm saying is if we were going to do it, then we might as well try to make the predictions as accurate as possible. If your predictions are more accurate fewer "innocent" people will end up in prison (innocent as in, wouldn't commit a crime if left out of prison.) In your example, less accurate predictions can literally ruin people's lives. Excluding data in that case would be much worse than just for loans.
>> If there was a 99% chance of you becoming addicted to them, then you probably shouldn't be given pain killers.
>If that person has a history of abusing painkillers, yes. If their friends do? C'mon, you can't possibly justify that position.
I don't see why it matters that the data came from who your friends were. It could just as easily come from blood tests or who your parents are, or all sorts of arbitrary things outside of your control. The point is 99% of people with that feature become addicted to the painkillers and it ruined their lives.
If there is a 99% chance of that happening to you, would you take the pain killers? Would you really care where the data came from Would you really ignore information if it was your own life at stake?
>I didn't argue for equal interest rates for all. It makes sense for interest rates are tied to risk, but it's only reasonable to make an assessment of risk based on an individual's performance and ability to pay, not their friends' or peers' performance.
But assessing risk at all puts some people at a disadvantage. It doesn't matter where the data came from, if the predictions aren't 100% accurate then some percent of people are going to wrongly have a higher interest rate, even if they pay back their loan on time.
I think you are thinking of this as an incentive system and not a predicting system. That is it's ok to select for features that people can control, like their past history, but not for things that are outside their control. But the point of interest isn't to reward or punish people for paying or not paying their previous loans back on time. It's just to make up for people that don't pay. The riskier you are, the more it costs to make up for all the other high risk people that didn't pay.
Ideally you just wouldn't give out loans to people who wouldn't pay them back, and would give loans with no interest to people who would. But usually it falls somewhere in between 0 and 100% probability. The goal isn't to reward or punish people, it's to predict as accurately as possible.
> "One such company, Lenddo, determines if you're friends on Facebook (FB) with someone who was late paying back a loan to Lenddo....
No explanation of the what the mechanism for collecting this is. Likely it's a matter of opting in to share your data through a Facebook app, an act whose culpability lies with the consumer.
> "Lenddo has about 250,000 members, but it only operates in the Philippines, Columbia and Mexico."
Um. Ok. Three sem-developed nations. It's journalistically incompetent not to explain what the relevance of those nations are to the operation of Lenddo, and why any of that is relevant to the American general public.
The only thing I learned from this was that CNN Money articles can be remarkably content-farmy and AOL-like, and HN readers can subdue their analytical spirit when it comes to piling on the criticism of an already-hated company (e.g. Facebook).
What a relief, since I deleted most of my facebook friends and left only two people on it. Although, from what I'm seeing, that could be a plus for some of these lenders!