A case-based reasoning model that uses preference theory functions for credit scoring

We propose a case-based reasoning (CBR) model that uses preference theory functions for similarity measurements between cases. As it is hard to select the right preference function for every feature and set the appropriate parameters, a genetic algorithm is used for choosing the right preference functions, or more precisely, for setting the parameters of each preference function, as to set attribute weights. The proposed model is compared to the well-known k-nearest neighbour (k-NN) model based on the Euclidean distance measure. It has been evaluated on three different benchmark datasets, while its accuracy has been measured with 10-fold cross-validation test. The experimental results show that the proposed approach can, in some cases, outperform the traditional k-NN classifier.

[1]  Constantin Zopounidis,et al.  A survey of business failures with an emphasis on prediction methods and industrial applications , 1996 .

[2]  Thomas Roth-Berghofer,et al.  Review and Restore for Case‐Base Maintenance , 2001, Comput. Intell..

[3]  Stephanie M. Bryant,et al.  A case-based reasoning approach to bankruptcy prediction modeling , 1997, Intell. Syst. Account. Finance Manag..

[4]  Christopher Cheong,et al.  Consumer credit scoring using an artificial immune system algorithm , 2007, 2007 IEEE Congress on Evolutionary Computation.

[5]  Daniel Martin,et al.  Early warning of bank failure: A logit regression approach , 1977 .

[6]  Jean Pierre Brans,et al.  HOW TO SELECT AND HOW TO RANK PROJECTS: THE PROMETHEE METHOD , 1986 .

[7]  Carol E. Brown,et al.  Artificial neural networks in accounting and finance: modeling issues , 2000 .

[8]  Chih-Chou Chiu,et al.  Credit scoring using the hybrid neural discriminant technique , 2002, Expert Syst. Appl..

[9]  Jonathan Crook,et al.  Sample selection bias in credit scoring models , 2003, J. Oper. Res. Soc..

[10]  Pei-Chann Chang,et al.  A case-based expert support system for due-date assignment in a wafer fabrication factory , 2003, J. Intell. Manuf..

[11]  Danuta Zakrzewska.  ON INTEGRATING UNSUPERVISED AND SUPERVISED CLASSIFICATION FOR CREDIT RISK EVALUATION , 2007 .

[12]  Shu-Hsuan Chang,et al.  Applying case-based reasoning for product configuration in mass customization environments , 2005, Expert Syst. Appl..

[13]  Adi Raveh,et al.  Co-plot: A graphic display method for geometrical representations of MCDM , 2000, Eur. J. Oper. Res..

[14]  Vijay S. Desai,et al.  A comparison of neural networks and linear scoring models in the credit union environment , 1996 .

[15]  Jean Pierre Brans,et al.  A PREFERENCE RANKING ORGANIZATION METHOD , 1985 .

[16]  N. Ishii,et al.  A method of similarity metrics for structured representations , 1997 .

[17]  S. Wesley Changchien,et al.  Design and implementation of a case-based reasoning system for marketing plans , 2005, Expert systems with applications.

[18]  Ruimin Shen,et al.  GA based CBR approach in Q&A system , 2004, Expert Syst. Appl..

[19]  Jalal D. Akhavein,et al.  The Diffusion of Financial Innovations: An Examination of the Adoption of Small Business Credit Scoring by Large Banking Organizations , 2001 .

[20]  Mu-Chen Chen,et al.  Credit scoring with a data mining approach based on support vector machines , 2007, Expert Syst. Appl..

[21]  Bertrand Mareschal,et al.  Weight stability intervals in multicriteria decision aid , 1988 .

[22]  Zhiming Zhang,et al.  Similarity Measures for Retrieval in Case-Based Reasoning Systems , 1998, Appl. Artif. Intell..

[23]  Hyunchul Ahn,et al.  Using genetic algorithms to optimize nearest neighbors for data mining , 2008, Ann. Oper. Res..

[24]  Mu-Chen Chen,et al.  Credit scoring and rejected instances reassigning through evolutionary computation techniques , 2003, Expert Syst. Appl..

[25]  Stephen Slade,et al.  Case-Based Reasoning: A Research Paradigm , 1991, AI Mag..

[26]  Ingoo Han,et al.  A case-based approach using inductive indexing for corporate bond rating , 2001, Decis. Support Syst..

[27]  Chaochang Chiu,et al.  Predicting information systems outsourcing success using a hierarchical design of case-based reasoning , 2004, Expert Syst. Appl..

[28]  Kalyan Moy Gupta,et al.  A framework for retrieval in case-based reasoning systems , 1997, Ann. Oper. Res..

[29]  Ingoo Han,et al.  A case-based reasoning system with the two-dimensional reduction technique for customer classification , 2007, Expert Syst. Appl..

[30]  Hui Li,et al.  Business failure prediction using hybrid2 case-based reasoning (H2CBR) , 2010, Comput. Oper. Res..

[31]  Yan-Kwang Chen,et al.  Application of a 3NN+1 based CBR system to segmentation of the notebook computers market , 2010, Expert Syst. Appl..

[32]  Jih-Jeng Huang,et al.  Two-stage genetic programming (2SGP) for the credit scoring model , 2006, Appl. Math. Comput..

[33]  Roger C. Schank,et al.  SCRIPTS, PLANS, GOALS, AND UNDERSTANDING , 1988 .

[34]  J. Brans,et al.  Geometrical representations for MCDA , 1988 .

[35]  Ingoo Han,et al.  Case-based reasoning supported by genetic algorithms for corporate bond rating , 1999 .

[36]  L. Thomas.  A survey of credit and behavioural scoring: forecasting financial risk of lending to consumers , 2000 .

[37]  Agnar Aamodt,et al.  Case-Based Reasoning: Foundational Issues, Methodological Variations, and System Approaches , 1994, AI Commun..

[38]  Roberta Oliveira Parreiras,et al.  A multiplicative version of Promethee II applied to multiobjective optimization problems , 2007, Eur. J. Oper. Res..

[39]  Jiawei Han,et al.  Data Mining: Concepts and Techniques , 2000 .

[40]  Ingoo Han,et al.  A case-based reasoning with the feature weights derived by analytic hierarchy process for bankruptcy prediction , 2002, Expert Syst. Appl..

[41]  M. Shaw,et al.  Using an Expert System with Inductive Learning to Evaluate Business Loans , 1988 .

[42]  J. Efrim Boritz,et al.  Effectiveness of neural network types for prediction of business failure , 1995 .

[43]  Janet L. Kolodner,et al.  Case-Based Reasoning , 1988, IJCAI 1989.

[44]  Carol E. Brown,et al.  Artificial neural networks in accounting and finance: modeling issues , 2000, Intell. Syst. Account. Finance Manag..

[45]  P. Vincke,et al.  Note-A Preference Ranking Organisation Method: The PROMETHEE Method for Multiple Criteria Decision-Making , 1985 .

[46]  Chaochang Chiu,et al.  A case-based customer classification approach for direct marketing , 2002, Expert Syst. Appl..

[47]  Robert J. Elliott,et al.  A self tuning model for risk estimation , 2008, Expert Syst. Appl..

[48]  H. Raghav Rao.  Technology transfer: making expert systems commercially successful , 1992, IEEE Expert.

[49]  Kyoung-jae Kim,et al.  Toward Global Optimization of Case-Based Reasoning Systems for Financial Forecasting , 2004, Applied Intelligence.

[50]  Michael Y. Hu,et al.  Artificial neural networks in bankruptcy prediction: General framework and cross-validation analysis , 1999, Eur. J. Oper. Res..

[51]  Hui Li,et al.  Financial distress prediction based on OR-CBR in the principle of k-nearest neighbors , 2009, Expert Syst. Appl..

[52]  J. Stuart Aitken,et al.  Multiple algorithms for fraud detection , 2000, Knowl. Based Syst..

[53]  Se-Hak Chun,et al.  A new hybrid data mining technique using a regression case based reasoning: Application to financial forecasting , 2006, Expert Syst. Appl..

[54]  David West,et al.  Neural network credit scoring models , 2000, Comput. Oper. Res..

[55]  Jonathan Crook,et al.  Credit Scoring Models in the Credit Union Environment Using Neural Networks and Genetic Algorithms , 1997 .

[56]  P. Meyer,et al.  PREDICTION OF BANK FAILURES , 1970 .

[57]  R. A. M. O N L O P E Z D E M A N T A R A S,et al.  Retrieval, reuse, revision and retention in case-based reasoning , 2006 .

[58]  Ingoo Han,et al.  The impact of measurement scale and correlation structure on classification performance of inductive learning and statistical methods , 1996 .

[59]  Ingoo Han,et al.  Integration of Case-based Forecasting, Neural Network, and Discriminant Analysis for Bankruptcy Prediction , 1996 .

[60]  V. S. Molostvov,et al.  Multiple - Criteria Decision Making under Uncertainty , 1992 .

[61]  Edward I. Altman,et al.  FINANCIAL RATIOS, DISCRIMINANT ANALYSIS AND THE PREDICTION OF CORPORATE BANKRUPTCY , 1968 .

[62]  Sang-Chan Park,et al.  Case-based reasoning and neural network based expert system for personalization , 2007, Expert Syst. Appl..

[63]  Ingoo Han,et al.  Maintaining case-based reasoning systems using a genetic algorithms approach , 2001, Expert Syst. Appl..

[64]  Tian-Shyug Lee,et al.  A two-stage hybrid credit scoring model using artificial neural networks and multivariate adaptive regression splines , 2005, Expert Syst. Appl..

[65]  Valentinas Podvezko,et al.  DEPENDENCE OF MULTI-CRITERIA EVALUATION RESULT ON CHOICE OF PREFERENCE FUNCTIONS AND THEIR PARAMETERS , 2010 .

[66]  Eiman Kambal,et al.  Credit scoring using data mining techniques with particular reference to Sudanese banks , 2013, 2013 INTERNATIONAL CONFERENCE ON COMPUTING, ELECTRICAL AND ELECTRONIC ENGINEERING (ICCEEE).

[67]  J. Crook,et al.  Credit scoring using neural and evolutionary techniques , 2000 .

[68]  Bertrand Mareschal,et al.  Stochastic multicriteria decision-making and uncertainty , 1986 .