On policymakers' loss functions and the evaluation of early warning systems

► This paper introduces novel measures for evaluating early warning systems (EWSs). ► A loss function is augmented to account for class-specific and observation-specific misclassification costs. ► The loss function is further augmented into an absolute and relative Usefulness measure. ► Incorporating unconditional probabilities leads to the need to be more concerned about the rare class. ► Observation-specific weights lead to the need to be more concerned about systemically important entities.