Joint research unit 7235

Reject inference in application scorecards: evidence from France

Ha Thu Nguyen

Credit scoring models are commonly developed using only accepted Known Good/Bad (G/B) applications, called KGB model, because we only know the performance of those accepted in the past. Obviously, the KGB model is not indicative of the entire through-the-door population, and reject inference precisely attempts to address the bias by assigning an inferred G/B status to rejected applications. In this paper, we discuss the pros and cons of various reject inference techniques, and pitfalls to avoid when using them. We consider a real dataset of a major French consumer finance bank to assess the effectiveness of the practice of using reject inference. To do that, we rely on the logistic regression framework to model probabilities to become good/bad, and then validate the model performance with and without sample selection bias correction. Our main results can be summarized as follows. First, we show that the best reject inference technique is not necessarily the most complicated one: reweighting and parceling provide more accurate and relevant results than fuzzy augmentation and Heckman’s two-stage correction. Second, disregarding rejected applications significantly impacts the forecast accuracy of the scorecard. Third, as the sum of standard errors dramatically reduces when the sample size increases, reject inference turns out to produce an improved representation of the population. Finally, reject inference appears to be an effective way to reduce overfitting in model selection.

AGENDA

Monday 27 June 2022

Law, Institutions and Economics in Nanterre (LIEN)

Miriam Buiten (St Gallen Univ)

En distanciel à 11H30

From intermediaries to moderators of the internet: Should online platforms be liable?

Monday 27 June 2022

Law, Institutions and Economics in Nanterre (LINK)

Miriam Buiten (St Gallen Univ)

En distanciel à 11H30

From intermediaries to moderators of the internet: Should online platforms be liable?

Thursday 30 June 2022

Doctorants

Zoltán Szücs | Gagnie Pascal Yebarth

Salle 401-402

Le rôle de la police municipale dans la satisfaction des attentes de la population parisienne en termes de tranquillité publique | Politiques publiques et externalités dans les jeux stratégiques de marché

Thursday 30 June 2022

PhD students

Zoltán Szücs | Gagnie Pascal Yebarth

Salle 401-402

Le rôle de la police municipale dans la satisfaction des attentes de la population parisienne en termes de tranquillité publique | Politiques publiques et externalités dans les jeux stratégiques de marché

Friday 1 July 2022

Colloques et Workshops

9th Workshop on Economic Analysis of Litigation

Friday 1 July 2022

Colloques et Workshops

9th Workshop on Economic Analysis of Litigation

Monday 4 July 2022

Colloques et Workshops

Joint Webinar on Environment and Health in Seaport Cities

Monday 4 July 2022

Colloques et Workshops

Webinar conjoint sur l’environnement et la santé dans les villes maritimes

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