Employees at small banks often search social media or the web for the names of loan applicants, says Jack Vonder Heide of Technology Briefing Centers, a consultancy. A loan officer might deny a loan upon learning that, say, an applicant is getting divorced. But if that process was automated and industrialised, it could turn a big bank into “very juicy fodder” for the press http://econ.st/156aws7
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- But, after all, isn't the duty of the bank to factor in all elements in deciding to grant a loan or not ?
Simply put, the Internet gives everybody access to more information thus allowing (theroretically) better decision making.
This should benefit even when the price of other goods and services he buys is lower because of more market efficiency.
Of course, much is to be said about the effective ability to process information and assess the merits :)Feb 11, 2013
- If you said: "never met a more reliable business partner than Jacopo Rumi", the bank should consider that too...Feb 11, 2013
- IT is HIGHLY illeagal to deny that loan based on research found on the web. THere are laws to protect the consumer against that type of decisioning. There has to be a clear and verifiable reason for a lending institution to deny credit.Feb 11, 2013
- While I undrestand your concern, I don't see how denying access to information can make the decision making process better and thus improve the efficiency of the market.
You you want some kind of mutualization of risk / credit rating that is a different subject.Feb 11, 2013
- Denying information can make the process better if the information is believed to have effect X, but it really has effect Y. For example, if the loan officer believes that all blacks are shiftless ne'er-do-wells, he might incorrectly downvote a mortgage from any African-American. Or, if he believes that all people who voted for George Bush are too stupid to pay their mortgage on time; that might also have a negative effect.
Essentially, there's a lot of unimportant, but easy-to-obtain information in the world. If someone uses it, it can easily make the loan predictions worse.
Now, of course, you're going to say that in a well-run corporation, the corporation would prevent that kind of thing from happening, in its own self-interest. True. But who says that they are all well-enough run to stamp that out? Do they really do the formalized statistical experiments necessary to decide whether each bit of information obtained from social media is really a useful predictor? Maybe, but maybe not.
And now, you're going to say, "But they have to be well run: the market forces them to be. Badly run companies go to the wall!". But that's not quite true. To survive, a corporation only needs to be 90% as good as its competitors. So, if the competitors aren't perfect, you don't need to be perfect either.
Therefore, I find it easy to imagine that less information can sometimes (even often) be better.Feb 11, 2013
- AZCA Zzz asserT zzzFeb 13, 2013