Friends List, Big Data and Loans

In the West, they have credit ratings for individuals. There are systems that keep track of your repayment record (electricity bills, credit card bills, EMI’s paid, outstanding loans etc). Your track record is then referred to when you apply for that loan or an increase on your card limit. India too has started building similar systems (like CIBIL).

But what about poorer countries with no such systems? Or immigrants with no credit record? The Economist reports that lenders are beginning to look at social networks to refine the credit ratings of potential borrowers:

-         Like your LinkedIn contacts could act as a cross-reference about your job (do you have many contacts from that job you claim to have? How good do your contacts think you are at your job (this acts as a hint of how long it might take you to land a new job should you get laid off);

-         Or your Facebook data can be used to gauge how well off your friends are (and thus, by association, you).

Note that the above techniques don’t involve asking your work contacts or friends about you: rather, they use algorithms to mine the data for patterns and statistical analysis.

Of course, this is the problem with all the digital data that exists about all of us. How reliable are these algorithms? Like the elephant, the Internet never forgets (the data is there forever in most cases). Which is why Nassim Taleb wrote in Antifragile:

“We’re more fooled by noise than ever before, and it’s because of a nasty phenomenon called “big data.” With big data, researchers have brought cherry-picking to an industrial level. Modernity provides too many variables, but too little data per variable. So the spurious relationships grow much, much faster than real information.”

But here’s the unfortunate thing: now that we know such alogorithms exist and act as input while deciding whether to lend or not, are we not likely to try and “game the system”? Or what Rob Horning described as the need to redline our friends list:

“Better purge all those high school friends from your Facebook who aren’t likely to be successful; get rid of all those college friends who seem weird or who update about unsavory low-class, low-status things. … It is dismaying to see how readily social media can be used not as a tool of connectivity but as a sorting mechanism that helps rationalize social inequality. It doesn’t merely map the social territory, but starts to dictate it, along the segregated lines it reveals and then reinforces.”

Takes that phrase “A man is known by the company he keeps” to a whole new level, doesn’t it?