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Evaluate small business loan applications

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Reference no: EM133068122

Consider a bank that is using a credit scoring model to evaluate small business loan applications.

a) How would you define a type 1 error for this credit scoring model?

b) Would you expect a negative correlation, a positive correlation or no correlation between Type 1 and Type 2 errors for this model? Explain your answer.

c) You employ a reject inference model to estimate the proportion of type 2 errors. The model estimates type 2 errors at 3%. How might you test the validity of the model?

Reference no: EM133068122

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