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Using Feature Construction to Improve the Performance of Neural Networks

Author

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  • Selwyn Piramuthu

    (Decision and Information Sciences, University of Florida, Gainesville, Florida 32611-7169)

  • Harish Ragavan

    (Beckman Institute for Advanced Science and Technology, University of Illinois at Urbana-Champaign, Urbana, Illinois 61801)

  • Michael J. Shaw

    (Department of Business Administration, University of Illinois at Urbana-Champaign, Champaign, Illinois 61820)

Abstract

Recent years have seen the growth in popularity of neural networks for business decision support because of their capabilities for modeling, estimating, and classifying. Compared to other AI methods for problem solving such as expert systems, neural network approaches are especially useful for their ability to learn adaptively from observations. However, neural network learning performed by algorithms such as back-propagation (BP) are known to be slow due to the size of the search space involved and also the iterative manner in which the algorithm works. In this paper, we show that the degree of difficulty in neural network learning is inherent in the given set of training examples. We propose a technique for measuring such learning difficulty, and then develop a feature construction methodology that helps transform the training data so that both the learning speed and classification accuracy of neural network algorithms are improved. We show the efficacy of the proposed method for financial risk classification, a domain characterized by frequent data noise, lack of functional structure, and high attribute interactions. Moreover, the empirical studies also provide insights into the structural characteristics of neural networks with respect to the input data used as well as possible mechanisms to improve the learning performance.

Suggested Citation

  • Selwyn Piramuthu & Harish Ragavan & Michael J. Shaw, 1998. "Using Feature Construction to Improve the Performance of Neural Networks," Management Science, INFORMS, vol. 44(3), pages 416-430, March.
    • Handle: RePEc:inm:ormnsc:v:44:y:1998:i:3:p:416-430
    DOI: 10.1287/mnsc.44.3.416
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    References listed on IDEAS

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    1. Kar Yan Tam & Melody Y. Kiang, 1992. "Managerial Applications of Neural Networks: The Case of Bank Failure Predictions," Management Science, INFORMS, vol. 38(7), pages 926-947, July.
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    2. Tomasz Korol, 2018. "The Implementation of Fuzzy Logic in Forecasting Financial Ratios," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 12(2), June.
    3. P. Du Jardin & E. Séverin, 2011. "Predicting Corporate Bankruptcy Using Self-Organising map: An empirical study to Improve the Forecasting horizon of financial failure model," Post-Print hal-00801878, HAL.
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    6. Gestel, Tony Van & Baesens, Bart & Suykens, Johan A.K. & Van den Poel, Dirk & Baestaens, Dirk-Emma & Willekens, Marleen, 2006. "Bayesian kernel based classification for financial distress detection," European Journal of Operational Research, Elsevier, vol. 172(3), pages 979-1003, August.
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    9. TOBBACK, Ellen & MOEYERSOMS, Julie & STANKOVA, Marija & MARTENS, David, 2016. "Bankruptcy prediction for SMEs using relational data," Working Papers 2016004, University of Antwerp, Faculty of Business and Economics.
    10. R Setiono & S-L Pan & M-H Hsieh & A Azcarraga, 2006. "Knowledge acquisition and revision using neural networks: an application to a cross-national study of brand image perception," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 57(3), pages 231-240, March.
    11. Ravi Kumar, P. & Ravi, V., 2007. "Bankruptcy prediction in banks and firms via statistical and intelligent techniques - A review," European Journal of Operational Research, Elsevier, vol. 180(1), pages 1-28, July.
    12. fernández, María t. Tascón & gutiérrez, Francisco J. Castaño, 2012. "Variables y Modelos Para La Identificación y Predicción Del Fracaso Empresarial: Revisión de La Investigación Empírica Reciente," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 15(1), pages 7-58.
    13. Pendharkar, Parag C., 2002. "A computational study on the performance of artificial neural networks under changing structural design and data distribution," European Journal of Operational Research, Elsevier, vol. 138(1), pages 155-177, April.
    14. Rajiv D. Banker & Robert J. Kauffman, 2004. "50th Anniversary Article: The Evolution of Research on Information Systems: A Fiftieth-Year Survey of the Literature in Management Science," Management Science, INFORMS, vol. 50(3), pages 281-298, March.
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