Ungeneralizable Contextual Logistic Bandit in Credit Scoring
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The application of reinforcement learning in credit scoring has created a unique setting for contextual logistic bandit that does not conform to the usual exploration-exploitation tradeoff but rather favors exploration-free algorithms. Through sufficient randomness in a pool of observable contexts, the reinforcement learning agent can simultaneously exploit an action with the highest reward while still learning more about the structure governing that environment. Thus, it is the case that greedy algorithms consistently outperform algorithms with efficient exploration, such as Thompson sampling. However, in a more pragmatic scenario in credit scoring, lenders can, to a degree, classify each borrower as a separate group, and learning about the characteristics of each group does not infer any information to another group. Through extensive simulations, we show that Thompson sampling dominates over greedy algorithms given enough timesteps which increase with the complexity of underlying features.
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