CS Professional · Artificial Intelligence, Data Analytics and Cyber Security - Laws and Practice · Data Analytics
A private bank in India uses historical loan repayment records and customer attributes to estimate the probability that each new applicant will default within 12 months. Which type of analytics does this represent, and what is its distinguishing feature?
This is predictive analytics. The bank uses historical repayment data to forecast the probability of future default for each applicant. It does not merely summarise or explain the past, and it does not recommend actions, which would be prescriptive analytics.
- ADescriptive analytics, because it summarises past repayments
- BPredictive analytics, because it uses past data to forecast the likelihood of future outcomesCorrect
- CPrescriptive analytics, because it automatically decides the loan terms
- DDiagnostic analytics, because it explains past defaults only
Explanation
Estimating the probability of future default from historical data is predictive analytics, using statistical or machine learning models. Prescriptive analytics would go further and recommend an action such as the loan terms. Descriptive and diagnostic analytics deal with what happened and why.
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