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In the context of bankruptcy prediction models, your textbookcalls the Type I error the mo

In the context of bankruptcy prediction models, your textbookcalls the Type I error the mo

In the context of bankruptcy prediction models, your textbookcalls the Type I error the more costly kind of an error. It isbecause it causes a lender to:

 

 

Not give loan to a firm that is going to stay healthy,incorrectly fearing that it will go bankrupt.

 

 

Give loan to a firm that is going to bankrupt, incorrectlythinking that it will not.

 

 

Not do business with firms that cannot be judged by themodel.

 

 

Assume that all firms are equally likely to go bankrupt.

Abhinav 03-Dec-2019

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