Automating judgmental decisions using neural networks: a model for processing business loan applications

Authors:
Rajeshwar Prasad Srivastava
Affiliations:
Department of Computer and Information Sciences, Towson State University, Towson, Maryland
Venue:
CSC '92 Proceedings of the 1992 ACM annual conference on Communications
Year:
1992

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Abstract

This paper presents a neural network model that simulates a business loan officer. The network is trained by showing financial ratios, past credit ratings, and loan records of a mixed sample of defaulted and non-defaulted companies. Once it is trained, it recommends to grant or deny a loan. The model uses human judgment of an expert as well as mathematical analysis of financial ratios. It includes into consideration the relative importance of different inputs, and the degree of belief in human judgments. An approach is shown, which allows an “explanation” for the decisions made. The results show that a neural network can be a valuable tool in simulating human decision-making.