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Using neural network rule extraction and decision tables for credit-risk evaluation

Record type: Article

Credit-risk evaluation is a very challenging and important management science problem in the domain of financial analysis. Many classification methods have been suggested in the literature to tackle this problem. Neural networks, especially, have received a lot of attention because of their universal approximation property. However, a major drawback associated with the use of neural networks for decision making is their lack of explanation capability. While they can achieve a high predictive accuracy rate, the reasoning behind how they reach their decisions is not readily available. In this paper, we present the results from analysing three real-life credit-risk data sets using neural network rule extraction techniques. Clarifying the neural network decisions by explanatory rules that capture the learned knowledge embedded in the networks can help the credit-risk manager in explaining why a particular applicant is classified as either bad or good. Furthermore, we also discuss how these rules can be visualized as a decision table in a compact and intuitive graphical format that facilitates easy consultation. It is concluded that neural network rule extraction and decision tables are powerful management tools that allow us to build advanced and userfriendly decision-support systems for credit-risk evaluation.

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Citation

Baesens, Bart, Setiono, Rudy, Mues, Christophe and Vanthienen, Jan (2003) Using neural network rule extraction and decision tables for credit-risk evaluation Management Science, 49, (3), pp. 312-329. (doi:10.1287/mnsc.49.3.312.12739).

More information

Published date: 2003
Keywords: credit-risk evaluation, neural networks, decision tables, classification

Identifiers

Local EPrints ID: 35975
URI: http://eprints.soton.ac.uk/id/eprint/35975
ISSN: 0025-1909
PURE UUID: d4735daa-fb88-48ee-889a-d4eccdee8bc8

Catalogue record

Date deposited: 24 May 2006
Last modified: 17 Jul 2017 15:46

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Contributors

Author: Bart Baesens
Author: Rudy Setiono
Author: Christophe Mues
Author: Jan Vanthienen

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