SMD is used to gauge whether a protected group receives statistically significantly
different pricing, line assignment or other terms than its control group. It is
computed by taking the difference in average outcomes for two groups and then
“standardizing it” to account for the spread of values within each group. SMD is
computed as follows3:
For “higher-is-better” measures like credit scores, negative SMDs indicate an
adverse disparity, while for “lower-is-better” measures like APR, positive SMDs
indicate a adverse disparity.
3https://digitalcommons.wayne.edu/jmasm/vol8/iss2/26/
Sawilowsky, S (2009). “New effect size rules of thumb”. Journal of Modern Applied Statistical Methods. 8 (2): 467–474. doi:10.22237/jmasm/1257035100.