A decision threshold defines the point at which a system changes from one action to another. A score above the cutoff might trigger an alert or trade, while a score below it might produce no action.
Thresholds turn gradual model estimates into discrete operational choices. Raising a threshold usually reduces the number of actions and may reduce false positives, but it can also miss opportunities that a lower threshold would accept.
A useful threshold is chosen from evidence about costs, benefits, uncertainty and acceptable risk. It should be tested on data separate from the examples used to design the rule and revisited when conditions change.
ELI5
A decision threshold is a line a score must cross before a system acts. It gives the system a clear stopping point instead of making every small signal count.
For example, a trading bot might require an estimated advantage of at least five cents. If the estimate is only three cents, the rule tells the bot to do nothing.
