Counterfactual Analysis via Large Language Models
Can AI predict how loan profits would change under different interest rates?
Researchers tested whether ChatGPT could predict how loan returns would change if interest rates were set differently—a type of "what-if" analysis critical for lenders deciding pricing strategy. With better prompting, ChatGPT's predictions improved significantly, reaching performance close to traditional machine-learning models, and the system showed it could reason through cause-and-effect relationships in loan outcomes.
Lenders make billions in decisions about interest rates, and accurate "what-if" modeling directly affects how profitable those decisions are. If LLMs can match or approach specialized algorithms for these predictions, lenders could use off-the-shelf AI tools instead of building expensive custom systems—potentially speeding up loan pricing decisions and making them accessible to smaller financial institutions.