Based on the model evaluation results, why is this a viable model for production?

A large mobile network operating company is building a machine learning model to predict customers who are likely to unsubscribe from the service. The company plans to offer an incentive for these customers as the cost of churn is far greater than the cost of the incentive.

The model produces the following confusion matrix after evaluating on a test dataset of 100 customers:

Based on the model evaluation results, why is this a viable model for production?

A . The model is 86% accurate and the cost incurred by the company as a result of false negatives is less than the false positives.
B . The precision of the model is 86%, which is less than the accuracy of the model.
C . The model is 86% accurate and the cost incurred by the company as a result of false positives is less than the false negatives.
D . The precision of the model is 86%, which is greater than the accuracy of the model.

View Answer

Answer: C

Explanation:

Based on the model evaluation results, this is a viable model for production because the model is 86% accurate and the cost incurred by the company as a result of false positives is less than the false negatives. The accuracy of the model is the proportion of correct predictions out of the total predictions, which can be calculated by adding the true positives and true negatives and dividing by the total number of observations. In this case, the accuracy of the model is (10 + 76) / 100 = 0.86, which means that the model correctly predicted 86% of the customers’ churn status. The cost incurred by the company as a result of false positives and false negatives is the loss or damage that the company suffers when the model makes incorrect predictions. A false positive is when the model predicts that a customer will churn, but the customer actually does not churn. A false negative is when the model predicts that a customer will not churn, but the customer actually churns. In this case, the cost of a false positive is the incentive that the company offers to the customer who is predicted to churn, which is a relatively low cost. The cost of a false negative is the revenue that the company loses when the customer churns, which is a relatively high cost. Therefore, the cost of a false positive is less than the cost of a false negative, and the company would prefer to have more false positives than false negatives. The model has 10 false positives and 4 false negatives, which means that the company’s cost is lower than if the model had more false negatives and fewer false positives.