Identifying the Outcome Variable

In most cases, you will already have a specific target variable in mind by the time you begin building an ordinal regression model. After all, the reason you use an ordinal regression model is that you know you want to predict an ordinal outcome. In this example, the ordinal outcome is Account status, with five categories: No debt history, No current debt, Payments current, Payments delayed, and Critical account.

Note that this particular ordering may not, in fact, be the best possible ordering of the outcomes. You can easily argue that a known customer with no current debt, or with payments current, is a better credit risk than a customer with no known credit history. See the discussion in the Test of Parallel Lines for more on this issue.

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