Exercise: Characterizing Costs and Savings

Analyzing costs and savings of a counseling program

The connection between model output and business decisions the client will make comes down to selecting a threshold for the predicted probabilities. Therefore, in this exercise, we will characterize the expected costs of the counseling program, in terms of costs of offering individual counseling sessions, as well as the expected savings, in terms of prevented defaults, at a range of thresholds. There will be different costs and savings at each threshold, because each threshold is expected to result in a different number of positive predictions, as well as a different number of true positives within these. The first step is to create an array of potential thresholds. We will use 0 through 1, going by an increment of 0.01. Perform the following steps to complete the exercise: