Like algorithms humans can also produce peculiar and unjust decisions, and be almost just as faceless.

Sir, Gillian Tett writes: “as institutions increasingly rely on predictive algorithms to make decisions, peculiar — and often unjust — outcomes are being produced.” “The tragic failings of faceless algorithms”

Indeed, but humans are also capable of producing peculiar and unjust decisions.

What could be more peculiar than regulators wanting banks to hold more capital against what by being perceived as risky has been made innocous to the bank system, than against what, because it is perceived as safe, is so much more dangerous?

And what is more unjust than because of these regulation allowing easier financing to those who want to buy houses, than to those entrepreneurs who are looking for a possibly life changing opportunity of a credit. 

Ms Tett quotes mathematician Cathy O’Neil’s Weapons of Math Destruction with: “Ill-conceived mathematical models now micromanage the economy, from advertising to prisons,” she writes. “They’re opaque, unquestioned and unaccountable and they ‘sort’, target or optimise millions of people . . . exacerbating inequality.”

Well “opaque, unquestioned and unaccountable” that applies equally to the bank regulators who do all seem to follow late Robert McNamara’s advice of “Never answer the question that is asked of you. Answer the question that you wish had been asked of you”

And on “exacerbating inequality”, the regulators de facto decreed inequality

https://subprimeregulations.blogspot.com/2016/03/decreed-inequality.html

PS. An aide-mémoire on the major mistakes with the risk based capital requirements

@PerKurowski

Math can be destructive, especially when applied to main-street by deskbound mathematicians with ulterior motives

Sir, as an Executive Director at the World Bank, in October 2004, in a formal statement I wrote: “Phrases such as “absolute risk-free arbitrage income opportunities” should be banned in our Knowledge Bank. We believe that much of the world’s financial markets are currently being dangerously overstretched through an exaggerated reliance on intrinsically weak financial models that are based on very short series of statistical evidence and very doubtful volatility assumptions.”

So clearly I cannot but to be in total agreement with the general concept of Cathy O’Neil’s “Weapons of Math Destruction” and as reported by Federica Cocco in “A manual for citizens taking on the machines” October 31.

But, I say “general agreement”, because I am not against math per se, just against math and models when applied to the real world by desk-bound mathematicians (and economists) who have never walked on main street; and are perhaps pursuing ulterior motives.

Take for instance credit evaluations. Do you think there is a lot of buyer interest in data that provides for a perfect credit scoring? Never so. Perfect credit scoring does not produce big profits. Big profits are the result of selling something very risky as very safe. Big profits are the result of convincing a debtor that data proves he is much riskier than what he really is.

@PerKurowski ©