Abstract

Probabilistic failure prediction models are commonly estimated from non-random samples of business companies. The proportion of failure companies in such samples is often much larger than the proportion of failure companies in most real-world decision contexts. This so-called “choice-based sample bias ” implies that calculated failure probabilities will be (more or less) biased. The purpose of the paper is to analyse this bias and its consequences for standard applications of probabilistic failure prediction models (for example probit/logit analysis) and in particular to investigate whether the bias can be eliminated without having to re-estimate the underlying statistical model. It is shown that there is a straightforward linkage between