Answered: A large number of insurance records are…

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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A large number of insurance records are to be examined to develop a model for predicting fraudulent claims. Of the claims in the historical database, 1% were judged to be fraudulent.

A sample database is taken to develop a model, and oversampling is used to provide a balanced sample in light of the very low response rate. When applied to this sample database (total number of records, N =800), the model ends up correctly classifying 310 frauds, and 270 non-frauds. It misses 90 frauds, and classified 130 records incorrectly as frauds when they were not.

a. Produce the classification matrix for the sample as it stands.

b. Find the adjusted misclassification rate (adjusting for the oversampling).

c. What percentage of new records would you expected to be classified as fraudulent?

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