Company
Date Published
Author
Terence Shin
Word count
1426
Language
English
Hacker News points
None

Summary

Fraud prediction models are becoming increasingly important as the world becomes more digitized, with record-highs of fraudulent activity reaching $42 billion in 2020. There are four types of fraud models: profile-specific models that identify fraudulent users, transaction-specific models that identify fraudulent transactions, rules-based models that use hard-coded rules to detect fraudulent activity, and machine learning models that learn from features to identify signals of fraudulent behavior. When choosing features for a model, it's essential to include as many signals indicating fraudulent activity as possible. Evaluating a fraud model is different from normal machine learning models due to the significant imbalance between fraudulent and non-fraudulent profiles/transactions, making accuracy an unsuitable metric. Instead, precision and recall metrics are used to assess the model's performance, with precision being suitable for scenarios where the cost of classifying a non-fraudulent transaction as fraudulent is high, and recall being critical when identifying every single fraudulent transaction.