Your question is Confidence Interval for Fraud Loss Change. Take a moment with it on the right.
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PayWave, a digital payments company, launched a new fraud detection model on a subset of card transactions. Risk leadership wants to know how to interpret the confidence interval around the observed change in fraud loss rate before deciding on a broader rollout.
Compare fraud loss rates between the old model (control) and the new model (treatment), compute a 95% confidence interval for the change in loss rate, and explain what that interval means for the business.
Fraud loss rate is defined as the proportion of transactions that resulted in confirmed fraud loss.
| Group | Transactions | Fraud-loss transactions | Observed loss rate |
|---|---|---|---|
| Control (old model) | 80,000 | 1,040 | 1.30% |
| Treatment (new model) | 82,000 | 902 | 1.10% |
Use a 95% confidence level.