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The Use of Psychometrics and Artificial Intelligence in Alternative Finance

In: The Palgrave Handbook of Technological Finance

Author

Listed:
  • Peter Romero

    (University of Cambridge)

  • Stephen Fitz

    (Keio University Global Research Institute)

Abstract

The fourth industrial revolution is changing all aspects of work and society through technological evolution that blurs the boundaries between physical, digital, and biological systems (Schwab 2017). Because of the far-reaching nature of these transformations, the regulated banking and financial service system is increasingly unable to fulfil their traditional roles of connecting corporate borrowers and private investors. Alternative finance (FinTech) start-ups draw the largest benefits from the ongoing changes since they are relatively more flexible than the incumbents and can act more freely outside the strict regulations imposed on the incumbents. They use disruptive innovation—novel business models, products, or organisational advantages to ensure their lead in a niche, which has the potential to take over the whole industry. Psychometrics and artificial intelligence lie at the core of this disruptive force. These developments result in intimate connections between humans and machine, and customers and companies. This article covers some of the ongoing changes in society, technology, and in the financial industry. The authors argue that it is not important to collect more data but better use the existing data. Algorithms of the future might do better to focus on what to forget than on what to predict.

Suggested Citation

  • Peter Romero & Stephen Fitz, 2021. "The Use of Psychometrics and Artificial Intelligence in Alternative Finance," Springer Books, in: Raghavendra Rau & Robert Wardrop & Luigi Zingales (ed.), The Palgrave Handbook of Technological Finance, pages 511-587, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-65117-6_21
    DOI: 10.1007/978-3-030-65117-6_21
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