McCarty talks a little about how low score people are more likely to file claims than high score people. I was a little confused what his point was.
It seems from the paper that he is talking about it in order to justify how credit score isn't actually an effective identifier of expected loss, and that the loss distribution of everybody across the board is actually the same; it's just that the frequency of high score people is not as high as that of low score because they don't file as many claims (because they're willing to eat losses to preserve their price).
But when you think about it, regardless of that reason, doesn't that effectively mean that the expected loss of the high score people actually is lower? Who cares that they don't submit a claim? Bottom line is that their overall is lower.
Can someone explain what his point is and how it doesn't mess up his whole tirade?
It seems from the paper that he is talking about it in order to justify how credit score isn't actually an effective identifier of expected loss, and that the loss distribution of everybody across the board is actually the same; it's just that the frequency of high score people is not as high as that of low score because they don't file as many claims (because they're willing to eat losses to preserve their price).
But when you think about it, regardless of that reason, doesn't that effectively mean that the expected loss of the high score people actually is lower? Who cares that they don't submit a claim? Bottom line is that their overall is lower.
Can someone explain what his point is and how it doesn't mess up his whole tirade?
McCarty question
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