1. Credit Card Fraud Detection: You are tasked with setting up a fraudulent purc
ID: 3370107 • Letter: 1
Question
1. Credit Card Fraud Detection: You are tasked with setting up a fraudulent purchase alert program for a bank. The idea is to send customers a verification text message whenever a large purchase is made to ensure the prucahse wasn't fraudulent. For each customer you have access to their purchase history only in the form of their mean purchase amount and the standard deviation of their purchase amounts. You certainly don't want to annoy your customers with text message alerts every time they buy a coffee--but you also want to ensure how capture any costly fraudulent purchases. Assume you are considering a customer with an average purchase of 5 dollars with a standard deviation of 5 dollars. Is this distribution of your purchase amounts likely to be symmetric? What do you expect this distribution (histogram of purchase prices) to look like roughly? . If you want to notify this customer for no more than 25% of the purchases what should you set as the threshold price for sending a text message? Discuss how this procedure could be improved upon if you are given the entire purchase history (prices of all purchases made) for each customer. What are the disadvantages of this procedure?Explanation / Answer
Ans: Since we get the information that costly transaction is to be notified only via text messages. Now we are considering a mean ( average price) of 5 and standard deviation of 5.
A low standard deviation means that most of the data points ( transaction: prices in our case) are very close to the average. A high standard deviation means that the numbers are spread out.
yes, the graph that is histogram would be symmetric in nature with 5 going towards left and 5 towards right. 5 is the standard deviation.
Since the average is 5., we will set 25% of average price value as a threshold for text message, 1.25 $
This process can be improved by double verification process. on swiping card a unique PIN(password only known to the persons who owns the credit card) to be entered and upon successful verification the money would be deducted from his credit card.
Disadvantage:
if a person forgot the PIN, he himself can't make transactions untill new PIN not received by him.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.