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Data Mining in Market Research

What is data mining?

Methods for finding interesting structure in large databases
E.g. patterns, prediction rules, unusual cases

Focus on efficient, scalable algorithms

Contrasts with emphasis on correct inference in statistics

Related to data warehousing, machine learning

Why is data mining important?

Well marketed; now a large industry; pays well
Handles large databases directly
Can make data analysis more accessible to end users
Semi-automation of analysis
Results can be easier to interpret than e.g. regression models
Strong focus on decisions and their implementation

CRISP-DM Process Model

Data Mining Software

Many providers of data mining software
SAS Enterprise Miner, SPSS Clementine, Statistica Data Miner,
MS SQL Server, Polyanalyst, KnowledgeSTUDIO,
See for a list
Good algorithms important, but also need good facilities for
handling data and meta-data

Well use:
WEKA (Waikato Environment for Knowledge Analysis)
Free (GPLed) Java package with GUI
Online at
Witten and Frank, 2000. Data Mining: Practical Machine Learning
Tools and Techniques with Java Implementations.

R packages
E.g. rpart, class, tree, nnet, cclust, deal, GeneSOM, knnTree,
mlbench, randomForest, subselect

Data Mining Terms

Different names for familiar statistical concepts,
from database and AI communities
Observation = case, record, instance
Variable = field, attribute
Analysis of dependence vs interdependence =
Supervised vs unsupervised learning
Relationship = association, concept
Dependent variable = response, output
Independent variable = predictor, input

Common Data Mining Techniques

Predictive modeling
Derive classification rules
Decision trees

Numeric prediction
Regression trees, model trees

Association rules
Meta-learning methods
Cross-validation, bagging, boosting

Other data mining methods include:

artificial neural networks, genetic algorithms, density estimation,
clustering, abstraction, discretisation, visualisation, detecting
changes in data or models

Methods for predicting a discrete response
One kind of supervised learning
Note: in biological and other sciences, classification
has long had a different meaning, referring to cluster

Applications include:
Identifying good prospects for specific marketing or
sales efforts
Cross-selling, up-selling when to offer products
Customers likely to be especially profitable
Customers likely to defect

Identifying poor credit risks

Diagnosing customer problems

Weather/Game-Playing Data
Small dataset
14 instances
5 attributes

Outlook - nominal
Temperature - numeric
Humidity - numeric
Wind - nominal
Whether or not a certain game would be played
This is what we want to understand and predict

ARFF file for the weather data.

German Credit Risk Dataset

1000 instances (people), 21 attributes
class attribute describes people as good or bad
credit risks
Other attributes include financial information and
E.g. checking_status, duration, credit_history, purpose,
credit_amount, savings_status, employment, Age, housing,
job, num_dependents, own_telephone, foreign_worker

Want to predict credit risk

Data available at UCI machine learning data

and on 747 web page

Classification Algorithms
Many methods available in WEKA
0R, 1R, NaiveBayes, DecisionTable, ID3, PRISM,
Instance-based learner (IB1, IBk), C4.5 (J48), PART,
Support vector machine (SMO)

Usually train on part of the data, test on the rest

Simple method Zero-rule, or 0R
Predict the most common category
Class ZeroR in WEKA

Too simple for practical use, but a useful baseline for

evaluating performance of more complex methods

1-Rule (1R) Algorithm

Based on single predictor
Predict mode within each value of that predictor

Look at error rate for each predictor on training

dataset, and choose best predictor
Called OneR in WEKA
Must group numerical predictor values for this
Common method is to split at each change in the
Collapse buckets until each contains at least 6

1R Algorithm (continued)
Biased towards predictors with more categories
These can result in over-fitting to the training data

But found to perform surprisingly well

Study on 16 widely used datasets
Holte (1993), Machine Learning 11, 63-91

Often error rate only a few percentages points higher

than more sophisticated methods (e.g. decision trees)
Produced rules that were much simpler and more
easily understood

Nave Bayes Method

Calculates probabilities of each response value,
assuming independence of attribute effects
P X A, B, C

P( A, B, C )

Response value with highest probability is

Numeric attributes are assumed to follow a
normal distribution within each response value
Contribution to probability calculated from normal
density function
Instead can use kernel density estimate, or simply
discretise the numerical attributes

Nave Bayes Calculations

Observed counts and probabilities above

Temperature and humidity have been discretised

Consider new day

Outlook=sunny, temperature=cool, humidity=high, windy=true

Probability(play=yes) 2/9 x 3/9 x 3/9 x 3/9 x 9/14= 0.0053
Probability(play=no) 3/5 x 1/5 x 4/5 x 3/5 x 5/14= 0.0206
Probability(play=no) = 0.0206/(0.0053+0.0206) = 79.5%
no four times more likely than yes

Nave Bayes Method

If any of the component probabilities are zero,
the whole probability is zero
Effectively a veto on that response value
Add one to each cells count to get around this
Corresponds to weak positive prior information

Nave Bayes effectively assumes that attributes

are equally important
Several highly correlated attributes could drown out
an important variable that would add new information

However this method often works well in practice

Decision Trees
Classification rules can be expressed in a tree
Move from the top of the tree, down through various
nodes, to the leaves
At each node, a decision is made using a simple test
based on attribute values
The leaf you reach holds the appropriate predicted value

Decision trees are appealing and easily used

However they can be verbose
Depending on the tests being used, they may obscure
rather than reveal the true pattern

More info online at


Decision tree with a replicated subtree

Problems with Univariate Splits

Constructing Decision Trees

Develop tree recursively
Start with all data in one root node
Need to choose attribute that defines first split
For now, we assume univariate splits are used

For accurate predictions, want leaf nodes to be as

pure as possible
Choose the attribute that maximises the average
purity of the daughter nodes
The measure of purity used is the entropy of the node
This is the amount of information needed to specify the value
of an instance in that node, measured
in bits
entropy p1 , p2 , , pn pi log 2 pi
i 1

Tree stumps for the weather data





Weather Example
First node from outlook split is for sunny, with
entropy 2/5 * log2(2/5) 3/5 * log2(3/5) = 0.971
Average entropy of nodes from outlook split is
5/14 x 0.971 + 4/14 x 0 + 5/14 x 0.971= 0.693

Entropy of root node is 0.940 bits

Gain of 0.247 bits
Other splits yield:
Gain(temperature)=0.029 bits
Gain(humidity)=0.152 bits
Gain(windy)=0.048 bits

So outlook is the best attribute to split on

Expanded tree stumps for weather data




Decision tree for the weather data

Decision Tree Algorithms

The algorithm described in the preceding slides
is known as ID3
Due to Quinlan (1986)

Tends to choose attributes with many values

Using information gain ratio helps solve this problem

Several more improvements have been made to

handle numeric attributes (via univariate splits),
missing values and noisy data (via pruning)
Resulting algorithm known as C4.5
Described by Quinlan (1993)

Widely used (as is the commercial version C5.0)

WEKA has a version called J4.8

Classification Trees
Described (along with regression trees) in:
L. Breiman, J.H. Friedman, R.A. Olshen, and C.J. Stone, 1984.
Classification and Regression Trees.

More sophisticated method than ID3

However Quinlans (1993) C4.5 method caught up with CART in
most areas

CART also incorporates methods for pruning, missing

values and numeric attributes
Multivariate splits are possible, as well as univariate
Split on linear combination cjxj > d

CART typically uses Gini measure of node purity to determine

best splits
This is of the form p(1-p)

But information/entropy measure also available

Regression Trees
Trees can also be used to predict numeric
Predict using average value of the response in the
appropriate node
Implemented in CART and C4.5 frameworks

Can use a model at each node instead

Implemented in Wekas M5 algorithm
Harder to interpret than regression trees

Classification and regression trees are

implemented in Rs rpart package
See Ch 10 in Venables and Ripley, MASS 3rd Ed.

Problems with Trees

Can be unnecessarily verbose

Structure often unstable
Greedy hierarchical algorithm
Small variations can change chosen splits at high level nodes, which then
changes subtree below
Conclusions about attribute importance can be unreliable

Direct methods tend to overfit training dataset

This problem can be reduced by pruning the tree

Another approach that often works well is to fit the tree, remove all
training cases that are not correctly predicted, and refit the tree on
the reduced dataset
Typically gives a smaller tree
This usually works almost as well on the training data
But generalises better, e.g. works better on test data

Bagging the tree algorithm also gives more stable results

Will discuss bagging later

Classification Tree Example

Use Wekas J4.8 algorithm on German
credit data (with default options)
1000 instances, 21 attributes

Produces a pruned tree with 140 nodes,

103 leaves

=== Run information ===

weka.classifiers.j48.J48 -C 0.25 -M 2
Relation: german_credit
Instances: 1000
Attributes: 21

Number of Leaves :


Size of the tree :


=== Stratified cross-validation ===

=== Summary ===

Correctly Classified Instances

Incorrectly Classified Instances
Kappa statistic
Mean absolute error
Root mean squared error
Relative absolute error
77.134 %
Root relative squared error
100.4589 %
Total Number of Instances

=== Detailed Accuracy By Class ===

TP Rate FP Rate Precision Recall F-Measure Class

0.883 0.597
0.775 0.883 0.826 good
0.403 0.117
0.596 0.403 0.481 bad

=== Confusion Matrix ===

a b <-- classified as
618 82 | a = good
179 121 | b = bad


Due to over-fitting, cannot estimate prediction
error directly on the training dataset
Cross-validation is a simple and widely used
method for estimating prediction error
Simple approach
Set aside a test dataset
Train learner on the remainder (the training dataset)
Estimate prediction error by using the resulting
prediction model on the test dataset

This is only feasible where there is enough data

to set aside a test dataset and still have enough
to reliably train the learning algorithm

k-fold Cross-Validation
For smaller datasets, use k-fold cross-validation
Split dataset into k roughly equal parts









For each part, train on the other k-1 parts and use this part as
the test dataset
Do this for each of the k parts, and average the resulting
prediction errors

This method measures the prediction error when training

the learner on a fraction (k-1)/k of the data
If k is small, this will overestimate the prediction error
k=10 is usually enough

Regression Tree Example

data(car.test.frame) <- rpart(Mileage ~ Weight,


Weight< 2568



Weight< 3088



Weight< 2748

rpart(formula = Mileage ~ Weight, data = car.test.frame)
n= 60


Node number 1: 60 observations, complexity param=0.5953491

mean=24.58333, MSE=22.57639
left son=2 (45 obs) right son=3 (15 obs)
Primary splits:
Weight < 2567.5 to the right, improve=0.5953491, (0 missing)

Node number 2: 45 observations, complexity param=0.1345282

mean=22.46667, MSE=8.026667
left son=4 (22 obs) right son=5 (23 obs)
Primary splits:
Weight < 3087.5 to the right, improve=0.5045118, (0 missing)
(continued on next page)

CP nsplit rel error

0 1.0000000
1 0.4046509
2 0.2701227
3 0.2572943



Node number 3: 15 observations

mean=30.93333, MSE=12.46222

Node number 4: 22 observations

mean=20.40909, MSE=2.78719

Node number 5: 23 observations, complexity param=0.01282843

mean=24.43478, MSE=5.115312
left son=10 (15 obs) right son=11 (8 obs)
Primary splits:
Weight < 2747.5 to the right, improve=0.1476996, (0 missing)

Node number 10: 15 observations

mean=23.8, MSE=4.026667

Node number 11: 8 observations

mean=25.625, MSE=4.984375

Regression Tree Example

plotcp( <- prune(,cp=0.1)
post(, file="", cex=1)

Complexity Parameter Plot

size of tree






X-val Relative Error





Weight< 2568



Weight< 3088



Weight< 2748

Pruned Regression Tree

Endpoint = Mileage


Weight< 2568



Weight< 3088



Classification Methods
Project the attribute space into decision regions
Decision trees: piecewise constant approximation
Logistic regression: linear log-odds approximation
Discriminant analysis and neural nets: linear & non-linear separators

Density estimation coupled with a decision rule

E.g. Nave Bayes

Define a metric space and decide based on proximity

One type of instance-based learning
K-nearest neighbour methods
IBk algorithm in Weka

Would like to drop noisy and unnecessary points

Simple algorithm based on success rate confidence intervals available in Weka
Compares nave prediction with predictions using that instance
Must choose suitable acceptance and rejection confidence levels

Many of these approaches can produce probability distributions as well as

Depending on the application, this information may be useful
Such as when results reported to expert (e.g. loan officer) as input to their decision

Numeric Prediction Methods

Linear regression
Splines, including smoothing splines and
multivariate adaptive regression splines (MARS)
Generalised additive models (GAM)
Locally weighted regression (lowess, loess)
Regression and Model Trees
CART, C4.5, M5

Artificial neural networks (ANNs)

Artificial Neural Networks (ANNs)

An ANN is a network of many simple processors (or units), that are
connected by communication channels that carry numeric data
ANNs are very flexible, encompassing nonlinear regression models,
discriminant models, and data reduction models
They do require some expertise to set up
An appropriate architecture needs to be selected and tuned for each

They can be useful tools for learning from examples to find patterns
in data and predict outputs
However on their own, they tend to overfit the training data
Meta-learning tools are needed to choose the best fit

Various network architectures in common use

Multilayer perceptron (MLR)
Radial basis functions (RBF)
Self-organising maps (SOM)

ANNs have been applied to data editing and imputation, but not

Meta-Learning Methods - Bagging

General methods for improving the performance of most learning

Bootstrap aggregation, bagging for short
Select B bootstrap samples from the data
Selected with replacement, same # of instances
Can use parametric or non-parametric bootstrap

Fit the model/learner on each bootstrap sample

The bagged estimate is the average prediction from all these B models

E.g. for a tree learner, the bagged estimate is the average prediction
from the resulting B trees
Note that this is not a tree
In general, bagging a model or learner does not produce a model or
learner of the same form

Bagging reduces the variance of unstable procedures like

regression trees, and can greatly improve prediction accuracy
However it does not always work for poor 0-1 predictors

Meta-Learning Methods - Boosting

Boosting is a powerful technique for improving
The AdaBoost.M1 method (for classifiers):
Give each instance an initial weight of 1/n
For m=1 to M:
Fit model using the current weights, & store resulting model m
If prediction error rate err is zero or >= 0.5, terminate loop.
Otherwise calculate m=log((1-err)/err)
This is the log odds of success

Then adjust weights for incorrectly classified cases by

multiplying them by exp(m), and repeat

Predict using a weighted majority vote: mGm(x), where

Gm(x) is the prediction from model m

Meta-Learning Methods - Boosting

For example, for the German credit dataset:
using 100 iterations of AdaBoost.M1 with the
DecisionStump algorithm,
10-fold cross-validation gives an error rate of
24.9% (compared to 26.1% for J4.8)

Association Rules

Data on n purchase baskets in form (id, item1, item2, , itemk)

For example, purchases from a supermarket

Association rules are statements of the form:

When people buy tea, they also often buy coffee.

May be useful for product placement decisions or cross-selling

We say there is an association rule i1 ->i2 if
i1 and i2 occur together in at least s% of the n baskets (the support)
And at least c% of the baskets containing item i1 also contain i2 (the

The confidence criterion ensures that often is a large enough

proportion of the antecedent cases to be interesting
The support criterion should be large enough that the resulting rules
have practical importance
Also helps to ensure reliability of the conclusions

Association rules
The support/confidence approach is widely used
Efficiently implemented in the Apriori algorithm
First identify item sets with sufficient support
Then turn each item set into sets of rules with sufficient confidence

This method was originally developed in the database

community, so there has been a focus on efficient
methods for large databases
Large means up to around 100 million instances, and about ten
thousand binary attributes

However this approach can find a vast number of rules,

and it can be difficult to make sense of these
One useful extension is to identify only the rules with high
enough lift (or odds ratio)

Classification vs Association Rules

Classification rules predict the value of a
pre-specified attribute, e.g.
If outlook=sunny and humidity=high then play =no

Association rules predict the value of an

arbitrary attribute (or combination of
E.g. If temperature=cool then humidity=normal
If humidity=normal and play=no then windy=true
If temperature=high and humidity=high then

Clustering EM Algorithm
Assume that the data is from a mixture of normal
I.e. one normal component for each cluster

For simplicity, consider one attribute x and two

components or clusters
Model has five parameters: (p, 1, 1, 2, 2) =


l X log p1 xi 1 p 2 xi ,
i 1

where j xi is the normal density for the j th component.

This is hard to maximise directly
Use the expectation-maximisation (EM) algorithm instead

Clustering EM Algorithm
Think of data as being augmented by a latent 0/1 variable
di indicating membership of cluster 1
If the values of this variable were known, the loglikelihood would be:

l X , D log d i1 xi 1 d i 2 xi
i 1

Starting with initial values for the parameters, calculate

the expected value of di
Then substitute this into the above log-likelihood and
maximise to obtain new parameter values
This will have increased the log-likelihood

Repeat until the log-likelihood converges

Clustering EM Algorithm
Resulting estimates may only be a local
Run several times with different starting points
to find global maximum (hopefully)

With parameter estimates, can calculate

segment membership probabilities for
each case
1 xi
P Di 1 , xi
1 xi 2 xi

Clustering EM Algorithm
Extending to more latent classes is easy
Information criteria such as AIC and BIC are often used to decide
how many are appropriate

Extending to multiple attributes is easy if we assume they

are independent, at least conditioning on segment
It is possible to introduce associations, but this can rapidly
increase the number of parameters required

Nominal attributes can be accommodated by allowing

different discrete distributions in each latent class, and
assuming conditional independence between attributes
Can extend this approach to a handle joint clustering and
prediction models, as mentioned in the MVA lectures

Clustering - Scalability Issues

k-means algorithm is also widely used

However this and the EM-algorithm are slow on large databases
So is hierarchical clustering - requires O(n2) time
Iterative clustering methods require full DB scan at each iteration
Scalable clustering algorithms are an area of active research
A few recent algorithms:

Multi-Resolution kd-Tree for K-Means [PM99]

Scalable K-Means [BFR98a]

Multi-Resolution kd-Tree for EM [Moore99]
Scalable EM [BRF98b]
CF Kernel Density Estimation [ZRL99]

Ethics of Data Mining

Data mining and data warehousing raise ethical and legal
Combining information via data warehousing could violate
Privacy Act
Must tell people how their information will be used when the data is

Data mining raises ethical issues mainly during application

of results
E.g. using ethnicity as a factor in loan approval decisions
E.g. screening job applications based on age or sex (where not
directly relevant)
E.g. declining insurance coverage based on neighbourhood if this is
related to race (red-lining is illegal in much of the US)

Whether something is ethical depends on the application

E.g. probably ethical to use ethnicity to diagnose and choose
treatments for a medical problem, but not to decline medical