Cost Matrix
From Open Risk Manual
Definition
A Cost Matrix is a method for adjusting the weight assigned to misclassifications by Credit Scoring Models in particular supervised models. The cost matrix offers a means to differentiate the importance of Type I and Type II classification errors
Example
A Credit Scorecard could have a 2x2 cost matrix as follows:
| ||||||||||||||
| In this cost matrix example, correct classification offers a +100 benefit, wrong rejection of a good credit has an opportunity cost of -100,
correct classification of a bad credit is neutral, incorrect classification of a bad credit has a loss of -500 | ||||||||||||||
