The effects of data preprocessing on probability of default model fairness

Abstract

In the context of financial credit risk evaluation, the fairness of machine learning models has become a critical concern, especially given the potential for biased predictions that disproportionately affect certain demographic groups. This study investigates the impact of data preprocessing, with a specific focus on Truncated Singular Value Decomposition (SVD), on the fairness and performance of probability of default models. Using a comprehensive dataset sourced from Kaggle, various preprocessing techniques, including SVD, were applied to assess their effect on model accuracy, discriminatory power, and fairness.