Regulatory arbitrage or random errors? Implications of race prediction algorithms in fair lending analysis
监管套利还是随机误差？种族预测算法对公平信贷分析的影响
When race is not directly observed, regulators and analysts commonly predict it using algorithms based on last name and address. In small business lending—where regulators assess fair lending law compliance using the Bayesian Improved Surname Geocoding (BISG) algorithm—we document large prediction errors among Black Americans. The errors bias measured racial disparities in loan approval rates downward by 43%, with greater bias for traditional vs. fintech lenders. Regulation…