Assignment #3 Model Selection and Assessment
1
Due Date: February 28, 2011
Problem 1 (Target Marketing)
Suppose that the revenue generated if the target responds is r
and the cost of sending out a letter is c.
(a)
Set up the profit matrix. (1 Point)
(b)
What is the Bayes cutoff probability if no adjustment needed? (1 Point)
(c)
What is the Bayes cutoff probability if adjustment is needed? (1 Point)
Assume the adjusted Confusion Matrix
Predicted Class
Target
Not
True
Class
Response
1
1
N
TP
1
1
N
FN
1
..
N
No Response
0
0
N
FP
0
0
N
TN
(d)
What is the calculated profit in part (c)? (1 Point)
Problem 2 (Consider the Opportunity Cost)
Suppose the revenue from a responder is r and
the cost for an individual mailing is c.
Since the company can use the budget for something
more profitable than this marketing, you can convince the management team only if the ratio
is greater than a fixed number
.
You can only consider the adjusted case.
(a) What is the Bayes cutoff probability when adjustment is needed? (1 Point)
(b) Set up the profit matrix. (1 Point) (Hint: Use the result from Part (a))
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 Spring '11
 Staff
 Englishlanguage films, American films, profit matrix, Bayes cutoff probability

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