Offline Conservative RL for Transaction Authorization: Smartly Balancing Fraud Risk and Customer Friction

This study instantiates credit strategy optimization at the transaction authorization layer, with actions approve, review, and decline. Within an Offline Conservative RL (CQL) framework, we co-optimize fraud loss, operational burden from manual reviews, and customer friction from false positives and delays via a unified multi-objective cost function. Using a public credit-card transaction dataset with severe class imbalance, the learned policy improves total cost relative to cost-sensitive supervised baselines, while offering favorable trade-offs along a Pareto frontier between risk, operations, and friction. We detail the MDP design (state featurization, action space, and cost weights) and show that CQL mitigates out-of-distribution overestimation in offline settings. The results indicate that conservative RL is a practical path for transaction-level credit decision-making that balances fraud risk with operational efficiency and user impact.

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Publication Details

Journal
Journal of Economic Theory and Business Management
Published
2026-02-18
DOI
https://doi.org/10.70393/6a6574626d.333932
Primary Topic
Imbalanced Data Classification Techniques
Type
article
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article

Offline Conservative RL for Transaction Authorization: Smartly Balancing Fraud Risk and Customer Friction

Zhang Yiming, Yang Ximeng
Journal of Economic Theory and Business Management
Imbalanced Data Classification Techniques
article

Offline Conservative RL for Transaction Authorization: Smartly Balancing Fraud Risk and Customer Friction

Zhang Yiming, Yang Ximeng
article en

Abstract

This study instantiates credit strategy optimization at the transaction authorization layer, with actions approve, review, and decline. Within an Offline Conservative RL (CQL) framework, we co-optimize fraud loss, operational burden from manual reviews, and customer friction from false positives and delays via a unified multi-objective cost function. Using a public credit-card transaction dataset with severe class imbalance, the learned policy improves total cost relative to cost-sensitive supervised baselines, while offering favorable trade-offs along a Pareto frontier between risk, operations, and friction. We detail the MDP design (state featurization, action space, and cost weights) and show that CQL mitigates out-of-distribution overestimation in offline settings. The results indicate that conservative RL is a practical path for transaction-level credit decision-making that balances fraud risk with operational efficiency and user impact.

Journal of Economic Theory and Business ManagementVol. 3(1)
King University (US), Peking University (CN), University of Makati (PH)
Peace, Justice and strong institutions
Openalex Percentile: Top 54%
Imbalanced Data Classification Techniques
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Offline Conservative RL for Transaction Authorization: Smartly Balancing Fraud Risk and Customer Friction — Zhang Yiming, Yang Ximeng · Journal of Economic Theory and Business Management (2026) | TGRS Research Map | TGRS