The impact of a sample bias on comsumer credit scoring performance and profitability

The impact of a sample bias on comsumer credit scoring performance and profitability

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Article ID: iaor20062720
Country: United Kingdom
Volume: 56
Issue: 8
Start Page Number: 981
End Page Number: 992
Publication Date: Aug 2005
Journal: Journal of the Operational Research Society
Authors: ,
Keywords: credit scoring
Abstract:

This article seeks to gain insight into the influence of sample bias in a consumer credit scoring model. In earlier research, sample bias has been suggested to pose a sizeable threat to predictive performance and profitability due to its implications on either population drainage or biased estimates. Contrary to previous – mainly theoretical – research on sample bias, the unique features of the dataset used in this study provide the opportunity to investigate the issue in an empirical setting. Based on the data of a mail-order company offering short term consumer credit to their consumers, we show that (i) given a certain sample size, sample bias has a significant effect on consumer credit-scoring performance and profitability, (ii) its effect is composed of the inclusion of rejected orders in the scoring model, and – to a lesser extent – the inclusion of these orders into the variable-selection process, and (iii) the impact of the effect of sample bias on consumer credit-scoring performance and profitability is modest.

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