Statistics for Data Science

Moving on

One particularity of this dataset that is mentioned on the (previously mentioned) website is that the data comes from a scenario where the two different types of errors defined have different costs associated with them.

Specifically, the cost of misclassifying a high-risk customer as a low-risk customer is five times more expensive for the bank than misclassifying a low-risk customer as a high-risk customer. This is understandable, as in the first case, the bank stands to lose a lot of money from a loan it gives out that cannot be repaid, whereas in the second case, the bank misses out on an opportunity to give out a loan that will yield interest for the bank.

This is a practical example where predictive analytics have a direct ...