Java Reference

In-Depth Information

As a percentage of transactions or cases, fraud is normally quite

small, perhaps less than a few percent among all cases. A challenge

for some data mining algorithms using predictive modeling for fraud

detection is this imbalance between the number of known fraudulent

cases and nonfraudulent cases. When using classification to identify

fraud, such data can require special data preparation. A technique

called
stratified sampling
can be used to obtain a dataset that contains

a better balance. For example, if a million-case dataset contains 1 per-

cent known fraud cases, this means that for the 10,000 examples of

fraud, there are 990,000 examples of nonfraud. Many algorithms

have difficulty with this imbalance, producing models that cannot

distinguish fraud from nonfraud well. Consider that if the model

simply predicted all cases to be nonfraud, the result would be 99 per-

cent accurate, yet would not detect any fraud. By sampling the data

for 25 percent (10,000) fraudulent cases and 75 percent (30,000) non-

fraudulent cases, the algorithm can learn more effectively. When

stratified sampling is introduced,
prior probabilities
can be used to

inform the algorithm of the original population distribution, as

illustrated in Figure 2-5. In this example, the priors are 1 percent for

fraud
and 99 percent for
nonfraud
. We revisit this concept of prior

probability in Chapter 7. There are other techniques that can support

fraud detection such as anomaly detection, which is being intro-

duced in JDM 2.0.

Original Dataset

Target Value Distribution

for 1,000,000 Records

Stratified Sample Dataset

Target Value Distribution

for 40,000 Records

Model takes into account

the original distribution of

data when making

predictions

Stratified

Sample

Data

Build

Model

Nonfraud

99%

Nonfraud

75%

Fraud

25%

Prior Probability specification

Nonfraud = 0.99

Fraud = 0.01

Fraud 1%

Figure 2-5

Example of stratified sampling and prior probabilities.

Search WWH ::

Custom Search