An extended tuning method for cost‐sensitive regression and forecasting

In many real‐world regression and forecasting problems, over‐prediction and under‐prediction errors have different consequences and incur asymmetric costs. Such problems entail the use of cost‐sensitive learning, which attempts to minimize the expected misprediction cost, rather than minimize a simple measure such as mean squared error. A method has been proposed recently for tuning a regular regression model post hoc so as to minimize the average misprediction cost under an asymmetric cost structure. In this paper, we build upon that method and propose an extended tuning method for cost‐sensitive regression. The previous method becomes a special case of the method we propose. We apply the proposed method to loan charge‐off forecasting, a cost‐sensitive regression problem that has had a bearing on bank failures over the last few years. Empirical evaluation in the loan charge‐off forecasting domain demonstrates that the method we have proposed can further lower the misprediction cost significantly.