Stacked generalizations in imbalanced fraud data sets using resampling methods

Abstract

Predicting fraud is challenging due to inherent issues in the fraud data structure, since the crimes are committed through trickery or deceit with an ever-present moving target of changing modus operandi to circumvent human and system controls. As a national security challenge, criminals continually exploit the electronic financial system to defraud consumers and businesses by finding weaknesses in the system, including in audit controls. This study uses stacked generalization using meta or super learners for improving the performance of algorithms in step one (minimizing the algorithm error rate to reduce its bias in the learning set) and then in step two the results are input into the meta learner with its stacked blended output (with the weakest algorithms learning better). A fundamental key to fraud data is that it is inherently not systematic, and an optimal resampling methodology has yet not been identified. Building a test harness, for all permutations of algorithm sample set pairs, demonstrates that the complex, intrinsic data structures are all thoroughly tested. A comparative analysis on fraud data that applies stacked generalizations provides useful insight to find the optimal mathematical formula for imbalanced fraud data sets necessary to improve upon fraud detection for national security.