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R Statistical Application Development by Example Beginner's Guide by Prabhanjan Narayanachar Tattar

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Receiving operator curves

In the binary classification problem, we have certain scenarios where the comparison between the predicted and actual class is of great importance. For example, there is a genuine problem in the banking industry for identifying fraudulent transactions against the non-fraudulent transactions. There is another problem of sanctioning loans to customers who may successfully repay the entire loan and the customers who will default at some stage during the loan tenure. Given the historical data, we will build a classification model, for example the logistic regression model.

Now with the logistic regression model, or any other classification model for that matter, if the predicted probability is greater than 0.5, the observation ...

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