Unbiased split selection for classification trees based on the Gini Index

The Gini gain is one of the most common variable selection criteria in machine learning. We derive the exact distribution of the maximally selected Gini gain in the context of binary classification using continuous predictors by means of a combinatorial approach. This distribution provides a formal support for variable selection bias in favor of variables with a high amount of missing values when the Gini gain is used as split selection criterion, and we suggest to use the resulting p-value as an unbiased split selection criterion in recursive partitioning algorithms. We demonstrate the efficiency of our novel method in simulation- and real data- studies from veterinary gynecology in the context of binary classification and continuous predictor variables with different numbers of missing values. Our method is extendible to categorical and ordinal predictor variables and to other split selection criteria such as the cross-entropy criterion

Prediction of claims in export credit finance: a comparison of four machine learning techniques

This study evaluates four machine learning (ML) techniques (Decision Trees (DT), Random Forests (RF), Neural Networks (NN) and Probabilistic Neural Networks (PNN)) on their ability to accurately predict export credit insurance claims. Additionally, we compare the performance of the ML techniques against a simple benchmark (BM) heuristic. The analysis is based on the utilisation of a dataset provided by the Berne Union, which is the most comprehensive collection of export credit insurance data and has been used in only two scientific studies so far. All ML techniques performed relatively well in predicting whether or not claims would be incurred, and, with limitations, in predicting the order of magnitude of the claims. No satisfactory results were achieved predicting actual claim ratios. RF performed significantly better than DT, NN and PNN against all prediction tasks, and most reliably carried their validation performance forward to test performance

Simulating California reservoir operation using the classification and regression-tree algorithm combined with a shuffled cross-validation scheme

The controlled outflows from a reservoir or dam are highly dependent on the decisions made by the reservoir operators, instead of a natural hydrological process. Difference exists between the natural upstream inflows to reservoirs and the controlled outflows from reservoirs that supply the downstream users. With the decision maker's awareness of changing climate, reservoir management requires adaptable means to incorporate more information into decision making, such as water delivery requirement, environmental constraints, dry/wet conditions, etc. In this paper, a robust reservoir outflow simulation model is presented, which incorporates one of the well-developed data-mining models (Classification and Regression Tree) to predict the complicated human-controlled reservoir outflows and extract the reservoir operation patterns. A shuffled cross-validation approach is further implemented to improve CART's predictive performance. An application study of nine major reservoirs in California is carried out. Results produced by the enhanced CART, original CART, and random forest are compared with observation. The statistical measurements show that the enhanced CART and random forest overperform the CART control run in general, and the enhanced CART algorithm gives a better predictive performance over random forest in simulating the peak flows. The results also show that the proposed model is able to consistently and reasonably predict the expert release decisions. Experiments indicate that the release operation in the Oroville Lake is significantly dominated by SWP allocation amount and reservoirs with low elevation are more sensitive to inflow amount than others

Does segmentation always improve model performance in credit scoring?

Credit scoring allows for the credit risk assessment of bank customers. A single scoring model (scorecard) can be developed for the entire customer population, e.g. using logistic regression. However, it is often expected that segmentation, i.e. dividing the population into several groups and building separate scorecards for them, will improve the model performance. The most common statistical methods for segmentation are the two-step approaches, where logistic regression follows Classification and Regression Trees (CART) or Chi-squared Automatic Interaction Detection (CHAID) trees etc. In this research, the two-step approaches are applied as well as a new, simultaneous method, in which both segmentation and scorecards are optimised at the same time: Logistic Trees with Unbiased Selection (LOTUS). For reference purposes, a single-scorecard model is used. The above-mentioned methods are applied to the data provided by two of the major UK banks and one of the European credit bureaus. The model performance measures are then compared to examine whether there is improvement due to the segmentation methods used. It is found that segmentation does not always improve model performance in credit scoring: for none of the analysed real-world datasets, the multi-scorecard models perform considerably better than the single-scorecard ones. Moreover, in this application, there is no difference in performance between the two-step and simultaneous approache