Compute the cost of a threshold
Translate a confusion matrix into expected dollar cost so stakeholders can choose a classification threshold.
Choose between threshold 0.40 and 0.65 for an invoice late-payment model. A false positive costs $90 in relationship and account-manager time. A false negative costs $450 in delayed cash and escalation. Confusion matrix -> error costs -> threshold policy Choosing the cleaner precision number while ignoring the cost of missed late payers. Name the errors False positive = reliable payer contacted. False negative = likely late payer not contacted. The math matters only after each cell has a business meaning. Price threshold 0.40 140 false positives x $90 = $12,600. 40 false negatives x $450 = $18,000. Total = $30,600.…
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