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Case Study

Handling variance after enlarging a fraud-detection model

Case context: You are building a fraud-detection neural network for mobile payment transactions. The current model shows high avoidable bias on the training data, so you expand the network by adding extra hidden layers. After retraining, the training error improves, but the model now performs worse on fresh data and shows high variance.

Question: What is the best next step to address the new variance problem without undoing the increase in model size?

Sample answer: Add regularization. Regularization is the standard way to reduce the variance introduced by a larger model.

Key points:

  • Increasing the network size reduced the original high bias.
  • The enlarged model now overfits, which means variance has increased.
  • Regularization is the appropriate fix for the new variance problem.

Rubric: Full credit for identifying regularization as the next step and connecting it to the variance created by the larger model.

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Updated 2026-08-12

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