It is almost impossible to turn on the news these days and not hear about the coming take over of artificial intelligence. Whether that be in self-driving cars, increased automation, or smart everything. While some of these headlines may be sensationalized in order to attract an audience, it’s hard to deny the growing popularity of complicated, data-driven algorithms that are creating more efficient, profitable businesses. The question is though, in an increasingly automated and data-driven credit industry, what is the role of gut feelings from experienced credit professionals.
Can gut feelings be trusted?
There has been extensive research in psychology on the subject of human decision making. No two people have had a larger effect on this field than Daniel Kahneman and Amos Tversky. They are credit with inventing the field of behavioral economics and their work focused primarily on the inherent bias and error in human decision making. In example after example, a basic algorithm was better than seasoned professionals at diagnosing tumors, assessing the mental health of a patient, or making driving decisions. In these same tests, experts often disagreed with each other and even themselves. The begs the question, how can you even trust a “gut decision” if each expert has a different one. You would be right that gut decisions are often flawed and carry a large amount of bias, but at the end of the day, data is at a premium. Sometimes you do not have enough information for a program to make a decision and must rely on years of experience. No program can beat the flexibility and adaptability of years of experience when a credit situation is less than ideal.
Best of both worlds
Humans will make mistakes and have inherent biases that we can not control. It is a fact of life, but at the same time by understanding this we can take steps to help ourselves. One of the best things to do is to use data and algorithms to augment but not replace credit professionals. This can take many forms, whether it be pre-screening done by a computer, implementing a credit scoring system, or using a computer to check the work of credit professionals. There will always be a need for humans in the credit world, no matter how advanced computers get, They key is understanding how to best utilize the strength of both to maximize profit and customer satisfaction.
How is your business using technology to enhance the credit process? Where do you see the future of the credit industry going?