Credit-card fraud costs business in the United States billions of dollars each year in stolen goods. Compounding the problem, the risk of fraud increases with the rapidly growing online retail market. To reduce fraud, businesses and credit card vendors have devised systems that recognize characteristics of fraudulent transactions. These systems are not perfect, however, and sometimes flag honest transactions as fraudulent and sometimes miss fraudulent transactions.

A business has been offered a fraud detection system to protect its online retail site. The system promises very high accuracy. The system catches 99% of fraudulent transactions; that is, given a transaction is fraudulent, the system signals a problem 99% of the time. The system flags honest transactions as fraudulent only 2% of the time.


Suppose that the prevalence of fraud is higher, at 5%. How does the performance of this system change?