Calibrating Predictions to Decisions: A Novel Approach to Multi-Class Calibration (Spotlight #15)

Decision makers often need to rely on imperfect probabilistic forecasts. While average performance metrics are typically available, it is difficult to assess the quality of individual forecasts and the corresponding utilities without strong assumptions on the data distribution. To convey confidence about individual predictions to decision-makers, we propose a compensation mechanism ensuring that the forecasted utility matches the actually accrued utility. While a naive scheme to compensate decision-makers for prediction errors can be exploited and might not be sustainable in the long run, we propose a mechanism based on fair bets and online learning that provably cannot be exploited. We demonstrate an application showing how passengers could confidently optimize individual travel plans based on flight delay probabilities estimated by an airline.