Profit- and risk-driven credit scoring under parameter uncertainty: A multiobjective approach

Profit-driven artificial intelligence (AI) systems and profit-based performance measures are widely used in credit scoring. When assessing the performance of an AI system for credit scoring, previous research typically assumes that the cost and benefit parameters and their distributional information are available. In reality, however, these parameters and their distributions are often not precisely known. This study considers parameter uncertainty in the development of credit-scoring models and the estimation of profits and risks generated by those models. We propose a novel profit-based metric—the worst-case expected minimum cost (WEMC)—to estimate the profit of credit-scoring models with uncertain parameters. Furthermore, we introduce the worst-case conditional value-at-risk (WCVaR) metric to measure the loss incurred from employing a classification model in credit scoring under the deterioration of cost parameters. A multiobjective feature-selection framework based on WEMC (or minimum cost) and WCVaR is then presented for model development. Using a comprehensive bankruptcy database, we compare the proposed methods with wrapper methods that use traditional metrics as selection criteria, as well as filter and embedding methods. We conduct extensive experiments to evaluate the economic benefits of the proposed methods under different scenarios that simulate dynamic changes in macroeconomic conditions. The results suggest that the proposed methods outperform other feature-selection methods in the aspects of profit and risk performance metrics in most cases.