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Toward interpretable machine learning: evaluating models of heterogeneous predictions

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  • Ruixun Zhang

    (Peking University
    Peking University
    Peking University
    Peking University)

Abstract

AI and machine learning have made significant progress in the past decade, powering many applications in FinTech and beyond. But few machine learning models, especially deep learning models, are interpretable by humans, creating challenges for risk management and model improvements. Here, we propose a simple yet powerful framework to evaluate and interpret any black-box model with binary outcomes and explanatory variables, and heterogeneous relationships between the two. Our new metric, the signal success share (SSS) cross-entropy loss, measures how well the model captures the relationship along any feature or dimension, thereby providing actionable guidance on model improvements. Simulations demonstrate that our metric works for heterogeneous and nonlinear predictions, and distinguishes itself from traditional loss functions in evaluating model interpretability. We apply the methodology to an example of predicting loan defaults with real data. Our framework is more broadly applicable to a wide range of problems in financial and information technology.

Suggested Citation

  • Ruixun Zhang, 2025. "Toward interpretable machine learning: evaluating models of heterogeneous predictions," Annals of Operations Research, Springer, vol. 347(2), pages 867-887, April.
  • Handle: RePEc:spr:annopr:v:347:y:2025:i:2:d:10.1007_s10479-024-06033-1
    DOI: 10.1007/s10479-024-06033-1
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