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Social Group Bias in AI Finance

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  • Thomas R. Cook
  • Sophia Kazinnik

Abstract

Financial institutions increasingly rely on large language models (LLMs) for high-stakes decision-making. However, these models risk perpetuating harmful biases if deployed without careful oversight. This paper investigates racial bias in LLMs specifically through the lens of credit decision-making tasks, operating on the premise that biases identified here are indicative of broader concerns across financial applications. We introduce a reproducible, counterfactual testing framework that evaluates how models respond to simulated mortgage applicants identical in all attributes except race. Our results reveal significant race-based discrepancies, exceeding historically observed bias levels. Leveraging layer-wise analysis, we track the propagation of sensitive attributes through internal model representations. Building on this, we deploy a control-vector intervention that effectively reduces racial disparities by up to 70% (33% on average) without impairing overall model performance. Our approach provides a transparent and practical toolkit for the identification and mitigation of bias in financial LLM deployments.

Suggested Citation

  • Thomas R. Cook & Sophia Kazinnik, 2025. "Social Group Bias in AI Finance," Papers 2506.17490, arXiv.org.
  • Handle: RePEc:arx:papers:2506.17490
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    File URL: http://arxiv.org/pdf/2506.17490
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