TECH DIVIDEND DESIGN

WHAT IS ARTIFICIAL INTELLIGENCE?

 Artificial intelligence (AI) is an area of computer science that emphasizes the creation of intelligent machines that
work and react like humans. Some of the activities computers with artificial intelligence are designed for include:
 Speech recognition
 Learning
 Planning
 Problem solving
BRANCHES OF ARTIFICIAL INTELLIGENCE

 Machine Learning: Machine learning is an application of

artificial intelligence (AI) that provides systems the ability to
automatically learn and improve from experience without
being explicitly programmed.
 Supervised machine learning algorithms can apply
what has been learned in the past to new data using labeled
examples to predict future events. Starting from the analysis
of a known training dataset
 unsupervised machine learning algorithms are used
when the information used to train is neither classified nor
labeled. Unsupervised learning studies how systems can
infer a function to describe a hidden structure from
unlabeled data.
UNDERSTANDING MACHINE LEARNING FOR FRAUD
DETECTION

 Machine Learning converts data intensive and

confusing information into a simple format that
suggests actions to decision makers. A user further
trains the ML system by continually adding data and
experience. Thus at its core, machine learning is a 3-
part cycle i.e. Train-Test-Predict. Optimizing the cycle
can make predictions more accurate and relevant to
the specific use-case.
HOW TO DETECT FRAUD USING MACHINE LEARNING?

• Training
Extract • Testing
Data • Cross-validation

Provide
• historical
Training data
sets

Building • Classification
Models • Regression
 Logistic Regression

Building models
Decision Tree

Random Forest

Neural networks
LOGISTIC REGRESSION

 Regression analysis is a popular, longstanding statistical technique that measures the strength of cause-and-effect
relationships in structured data sets. Regression analysis tends to become more sophisticated when applied to
fraud detection due to the number of variables and size of the data sets. It can provide value by assessing the
predictive power of individual variables or combinations of variables as part of a larger fraud strategy. In this
techniques, the authentic transactions are compared with the fraud ones to create an algorithm. This model
(algorithm) will predict whether a new transaction is fraudulent or not. For very large merchants these models
are specific to their customer base
DECISION TREE

 This is a mature machine learning algorithm family used

to automate the creation of rules for classification tasks.
Decision Tree algorithms can use for classification or
regression predictive modeling problems. They are
essentially a set of rules which are trained using
examples of fraud that clients are facing. The creation of
a tree ignores irrelevant features and does not require
extensive normalization of the data. A tree can be
inspected and we can understand why a decision was
made by following the list of rules triggered by a certain
customer. The output of the machine learning algorithm
might be a model like the following decision tree. This
gives a probability score of fraud based on earlier
scenarios.
RANDOM FOREST

 Random Forest technique uses a combination of

multiple decision trees to improve the performance
of the classification or regression. It allows us to
smooth the error which might exist in a single tree.
It increases the overall performance and accuracy of
the model while maintaining our ability to interpret
the results
NEURAL NETWORKS

 It is an excellent complement to other techniques

and improves with exposure to data. The neural
network is a part of cognitive computing technology
where the machine mimics how the human brain
works and how it observes patterns. The neural
networks are completely adaptive; able to learn from
patterns of legitimate behavior. These can adapt to
the change in the behavior of normal transactions
and identify patterns of fraud transactions. The
process of the neural networks is extremely fast and
can make decisions in real time.
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