whether a loan will default or repay, the data scientist applies it to the validation set of $3,000$ observations to evaluate its performance.

Read the requirements.

Start by completing the confusion matrix for the cutoff point $0\mathrm{.}40.$

Confusion Matrix $(0\mathrm{.}40)$

$\backslash$table$[[,$Predicted Outcomes,Total$],[$Default$,$Repay$],[$Actual Outcomes,Default,,,$],[$Repay$,1,560,840,2,400],[,$Total,$1,800,,3,000]]$

Complete the confusion matrix for the cutoff point $0\mathrm{.}55.$

$\backslash$table$[[,-$ Confusion Matrix $(0\mathrm{.}55)],[$Predicted Outcomes,Total$],[$Default$,$Repay$],[\backslash$table$[[$Actual$],[$Outcomes$]],$Default,$450,,600],[$Repay$,,,2,400],[$Total$,,1,500,]]$

Start by construting the payroll matrix. $($Enter a loss amount with a minus sign or parentheses.$)$

Payoff Matrix

$\backslash$table$[[,$Predicted Outcomes$],[\backslash$table$[[$Default$],[($Do Not Invest in Loan$)]],$Repay $($Invest in Loan$)],[$Actual$,$Default,,$],[$Outcomes$,$Repay,,$]]$

Calculate the payoff at each cutoff probability.

Total payoff at cutoff $0\mathrm{.}40=$

Total payoff at cutoff $0\mathrm{.}55=$

Which model threshold should Drake and the data scientist use?

Drake and the data scientist should use the cutoff value at $$ because it results in the $$ predicted payoff.