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The risks of artificial intelligence used for decision making in financial services

Author

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  • Milkau, Udo

    (EACB)

Abstract

The risks associated with the use of artificial intelligence (AI) have captured the attention of research, regulation, and industry practitioners in recent years. Given that this is a vast topic in its own right, we are using the experiences of the financial services industry, in specific credit scoring, as a proxy for some of the salient features of AI from a sociotechnical perspective. Although it shares some of the operational risk challenges associated with other technologies, a model for decision making reveals how the interfaces with the social context create two new types of risk: naiveté in the use of data for training AI as a statistical classifier and perceptions of the stakeholders regarding its societal implications. While the first can – and has – to be mitigated by increased literacy within an active internal risk management, the latter requires building trust.

Suggested Citation

  • Milkau, Udo, 2021. "The risks of artificial intelligence used for decision making in financial services," Journal of Financial Transformation, Capco Institute, vol. 52, pages 128-141.
    • Handle: RePEc:ris:jofitr:1654
    as

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    More about this item

    Keywords

    Artificial Intelligence; Decision-making; Operational Risk; Social Context; Perceived Risks;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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