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The image below shows the penalty error matrix that can be used in Trees We can

ID: 3838804 • Letter: T

Question

The image below shows the penalty error matrix that can be used in Trees We can interpret this matrix as follows. Suppose the actual outcome for an observation is 3, and we predict 2. We find 3 on the top of the matrix, and go down to the second row (since we forecasted 2). The penalty error for this mistake is 2. If for another observation we predict (forecast) 4, but the actual outcome is 1, that is a penalty error of 3. What is the worst mistake we can make, according to the penalty error matrix? We predict 5 (very high cost), but the actual outcome is 5 (very high cost) We predict 1 (very low cost), but the actual outcome is 5 (very high cost). We predict 1 (very low cost), but the actual outcome is 1 (very low cost). We predict 5 (very high cost), but the actual outcome is 1 (very low cost).

Explanation / Answer

According to the penalty error matrix the worst mistake we do is

a) We predict 5(very high cost) but the actul outcome is 1(very low)