For example, if an Artificer is incapacitated or somehow unable to use a bonus action and the steel defender is getting attacked, would you allow it to attack back or just sit there taking hits? I know it technically goes against RAW, but since the steel defender seems to have some sort of basic form of AI that it should be able to act in self preservation.

Also, what's your opinion on lending out your steel defender to a party member and commanding it to follow their orders instead of your own? Personally I've had some fun experiences in which I've either had my artificer lend it to the party while I stayed back to build something or sent it off with the party scout to watch their back.

In combat, the steel defender shares your initiative count, but it takes its turn immediately after yours. It can move and use its reaction on its own, but the only action it takes on its turn is the Dodge action, unless you take a bonus action on your turn to command it to take one of the actions in its stat block or the Dash, Disengage, Help, Hide, or Search action.

Actions (Requires Your Bonus Action) Force-Empowered Rend. or Repair (3/Day).

Reaction

Deflect Attack. The defender imposes disadvantage on the attack roll of one creature it can see that is within 5 feet of it, provided the attack roll is against a creature other than the defender.

So reading this, look like RAW is that the Steel Defenders don't have an AI but are more just an extension of the player so if you are unable to give it commands as a Bonus Action all it can do is Dodge and use it's reaction to Deflect attacks on others which I would expect it would use Deflect Attack to defend your fallen form.

No sure if I would add to this, need to think more about it. 

I think that I might allow it, if someone's down, I've probably already made the fight challenging enough.  Though I would probably require the defender to stay near/over the body, making attacks to defend its fallen master, not chasing down enemies unless they are ranged and trying to attack the master.

Per RAW, it dodges only.

I run them as having a very basic AI.  If they're directly under attack without the ability to seek direction from their master they will fight or run based on various factors.

If their master is unconscious or hurt and unable to give orders it will defend it's master.  Neither have proven an is a in my games.

I know it's against RAW, as some of you have mentioned, so I was just trying to see what other people would allow in their games. I think I'm similar to you, Pixel_Kitsune, in the sense that I allow it to understand basic commands when not issued by the battle smith. So like if the artificer lends it to their party-members, it can follow somewhat basic commands like 'Go scout that place' or 'stay by me' but can't really communicate back to them. And if it's issued a command by it's master like, 'Go protect (party member)' then it will follow that order even if its master goes down or gets attacked since that was the last order it received.

Let think more RAI, Ranger's Beast companion has

If you are incapacitated or absent, the beast acts on its own, focusing on protecting you and itself. The beast never requires your command to use its reaction, such as when making an opportunity attack.

and most Beasts and the Steel Defender have the same Intelligence of 4 so I can see allowing the Steel Defender to defend itself and use it's reaction to do Deflect Attack to protect it's master. Intelligence 4 means it's more acting out of basic instinct so I would not allow complex strategy like knowing it needs to chase down fleeing foes so they don't bring back reinforcements. Maybe I would allow it trying to drag the master behind cover to protect them from range attacks VS them leaving master to chase down range attackers, Lassie would do something like that. 

At higher levels, you might want to see about getting an Awaken spell cast upon the poor thing :)

Quote from Mergon >>

At higher levels, you might want to see about getting an Awaken spell cast upon the poor thing :)

 Technically, I don't think that would work because it has an INT of 4. But as a DM, I'd allow it because it sounds like it would be fun.

I know this is old, but I was wondering about something similar so I found this thread.
As it is indeed a source people would find their answers, I'd like post an update to this issue.

" If you are incapacitated, the defender can take any action of its choice, not just Dodge."
Being unconscious, you're also incapacitated, this means the Steel Defender is actually able to act on it's own to defend it's master and party.

To the second question asked, no I would not allow for the played to tell the Defender to follow someone elses orders.
Why? Because "Force-Empowered Rend" is the "command"-attack action, and it can only target something YOU can see.

Now, it's a difference when you're unconscious, when it can do it's own actions. Why? I'd say because of the magical links between you two.
When you're unconscious, I'd argue you're party conscious within your goat through your connection, thus "allowing" or "command" your defender to act in that way.
The other reason is: When you're conscious, you can only tell your defender to do an action during a bonus action of yours, so I don't think "you follow someone elses orders" is a order you could give that way.
What I WOULD allow is to actually communicate with your defender telepathically, but only to give orders to it. The goat can't tell you what it sees or anything like that.

Quote from BurningFalcon>>

I know this is old, but I was wondering about something similar so I found this thread.
As it is indeed a source people would find their answers, I'd like post an update to this issue.

" If you are incapacitated, the defender can take any action of its choice, not just Dodge."
Being unconscious, you're also incapacitated, this means the Steel Defender is actually able to act on it's own to defend it's master and party.

To the second question asked, no I would not allow for the played to tell the Defender to follow someone elses orders.
Why? Because "Force-Empowered Rend" is the "command"-attack action, and it can only target something YOU can see.

Now, it's a difference when you're unconscious, when it can do it's own actions. Why? I'd say because of the magical links between you two.
When you're unconscious, I'd argue you're party conscious within your goat through your connection, thus "allowing" or "command" your defender to act in that way.
The other reason is: When you're conscious, you can only tell your defender to do an action during a bonus action of yours, so I don't think "you follow someone elses orders" is a order you could give that way.
What I WOULD allow is to actually communicate with your defender telepathically, but only to give orders to it. The goat can't tell you what it sees or anything like that.

 I never commented on it, but I am also a bit against lending your class feature to someone else. At least it can stay with your ally, dodge, and react, but giving commands in combat is your class feature as much as action surge is a fighter feature.

Well, I’m pretty sure it specifies that it can act on its own if you are incapacitated.