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Prediction

2 Forms of Data Analysis in Extracting Models

• CLASSIFICATION

• PREDICTION

• Classification models predict categorical class labels; and prediction

models predict continuous valued functions.

• For example, we can build a classification model to categorize bank

loan applications as either safe or risky, or a prediction model to

predict the expenditures in dollars of potential customers on

computer equipment given their income and occupation.

What is classification?

• A bank loan officer wants to • In both of the above

analyze the data in order to examples, a model or

know which customer (loan classifier is constructed to

applicant) are risky or which predict the categorical

are safe. labels. These labels are risky

• A marketing manager at a or safe for loan application

company needs to analyze a data and yes or no for

customer with a given marketing data.

profile, who will buy a new

computer.

What is prediction?

• Suppose the marketing • Note − Regression analysis is

manager needs to predict how a statistical methodology

much a given customer will

spend during a sale at his that is most often used for

company. In this example we numeric prediction.

are bothered to predict a

numeric value. Therefore the

data analysis task is an example Typical applications

of numeric prediction. In this Credit approval

case, a model or a predictor Target marketing

will be constructed that Medical diagnosis

predicts a continuous-valued- Fraud detection

function or ordered value.

How Does Classification Works?

The Data Classification process includes two steps −

• Building the Classifier or Model

• Using Classifier for Classification

Building the Classifier or Model

Using Classifier for Classification

used for classification. Here

the test data is used to

estimate the accuracy of

classification rules. The

classification rules can be

applied to the new data

tuples if the accuracy is

considered acceptable.

Classification and Prediction Issues

• Data Cleaning − Data cleaning involves removing the noise and

treatment of missing values. The noise is removed by applying

smoothing techniques and the problem of missing values is solved by

replacing a missing value with most commonly occurring value for

that attribute.

• Relevance Analysis − Database may also have the irrelevant

attributes. Correlation analysis is used to know whether any two

given attributes are related.

Classification and Prediction Issues

• Data Transformation and reduction − The data can be transformed by

any of the following methods.

• Normalization − The data is transformed using normalization. Normalization

involves scaling all values for given attribute in order to make them fall within

a small specified range. Normalization is used when in the learning step, the

neural networks or the methods involving measurements are used.

• Generalization − The data can also be transformed by generalizing it to the

higher concept. For this purpose we can use the concept hierarchies.

• Note − Data can also be reduced by some other methods such as

wavelet transformation, binning, histogram analysis, and clustering.

Comparison of Classification and Prediction

Methods

• Accuracy − Accuracy of classifier refers to the ability of classifier. It predict

the class label correctly and the accuracy of the predictor refers to how

well a given predictor can guess the value of predicted attribute for a new

data.

• Speed − This refers to the computational cost in generating and using the

classifier or predictor.

• Robustness − It refers to the ability of classifier or predictor to make

correct predictions from given noisy data.

• Scalability − Scalability refers to the ability to construct the classifier or

predictor efficiently; given large amount of data.

• Interpretability − It refers to what extent the classifier or predictor

understands.

Data Mining - Decision Tree Induction

• A decision tree is a structure that includes a root node, branches, and

leaf nodes.

• Each internal node denotes a test on an attribute, each branch

denotes the outcome of a test, and each leaf node holds a class label.

• The topmost node in the tree is the root node.

Decision Tree Induction

concept buy computer that indicates

whether a customer at a company is

likely to buy a computer or not. Each

internal node represents a test on an

attribute. Each leaf node represents

a class.

Problem PARENTS VISITING

yes

cinema no

• Katara is undecided if she will visit

her parents and join them to watch WEATHER

a movie in the cinema. If not, she

sunny windy

prepares to play tennis if that is Play

rainy

Stay in

sunny weather. However, if it is a tennis

windy day and have enough money MONEY

she will go to the groceries store,

or else go to game arcade. rich poor

Nevertheless, she wishes to stay at Shop to Play in game

home if it is a rainy day. grocery arcade

The benefits of having a decision tree are as

follows −

• It does not require any domain knowledge.

• It is easy to comprehend.

• The learning and classification steps of a decision tree are simple and

fast.

Decision Tree Induction Algorithm

• A machine researcher named J. Ross Quinlan in 1980 developed a

decision tree algorithm known as ID3 (Iterative Dichotomiser).

Later, he presented C4.5, which was the successor of ID3. ID3 and

C4.5 adopt a greedy approach. In this algorithm, there is no

backtracking; the trees are constructed in a top-down recursive

divide-and-conquer manner.

Tree Pruning

• Tree pruning is performed in order to remove anomalies in the

training data due to noise or outliers. The pruned trees are smaller

and less complex.

• Tree Pruning Approaches

• Pre-pruning − The tree is pruned by halting its

construction early.

• Post-pruning - This approach removes a sub-tree from a

fully grown tree.

Problem: Juana Magiting

company and a TV network both want exclusive rights

to one of her more popular works. If she signs with

the network, she will receive a single lump sum, but if

she signs with the movie company, the amount she

will receive depends on the market response to her

movie. What should she do?

Payouts and Probabilities

• Movie company Payouts

• Small box office – P 200,000

• Medium box office – P 1,000,000

• Large box office – P 3,000,000

• TV Network Payout

• Flat rate – P 900,000

• Probabilities

• P(Small Box Office) = 0.3

• P(Medium Box Office) = 0.6

• P(Large Box Office) = 0.1

Juana Magiting- Payoff Table

States of Nature

Decisions Office Office Office

P 200,000 P1,000,000 P3,000,000

Company

Sign with TV

P900,000 P900,000 P900,000

Network

Prior

0.3 0.6 0.1

Probabilities

Juana Magiting - How to Decide?

• Maximax?

• Maximin?

• Expected Return?

Using Expected Return Criteria

EVmovie=0.3(200,000)+0.6(1,000,000)+0.1(3,000,000)

= P960,000 = EVUII or EVBest

EVtv =0.3(900,000)+0.6(900,000)+0.1(900,000)

= P900,000

contract.

Something to Remember

Juana’s decision is only going to be made one time,

and she will earn either P200,000, P1,000,000 or

P3,000,000 if she signs the movie contract, not the

calculated EV of P960,000!!

making, as it will maximize Juana’s expected returns

in the long run if she continues to use this approach.

Expected Value of Perfect Information

(EVPI)

willing to pay to learn what the size of the

box office will be before she decides with

whom to sign?

EVPI Calculation

EVwPI (or EVc)

=0.3(900,000)+0.6(1,000,000)+0.1(3,000,000) = P 1,170,000

EVBest (calculated to be EVMovie from the previous page)

=0.3(200,000)+0.6(1,000,000)+0.1(3,000,000) = P 960,000

EVPI = $1,170,000 - $960,000 = P 210,000

up to P 210,000 to learn additional

information before making a decision.

Using Decision Trees

and solve sequential decision problems

• Especially beneficial when the complexity

of the problem grows

Decision Trees

• Three types of “nodes”

• Decision nodes - represented by squares (□)

• Chance nodes - represented by circles (Ο)

• Terminal nodes - represented by triangles (optional)

• Solving the tree involves pruning all but the best decisions

at decision nodes, and finding expected values of all

possible states of nature at chance nodes

• Create the tree from left to right

• Solve the tree from right to left

Example Decision Tree

Chance

Event 1

node

Decision Event 2

node Event 3

Juana Magiting Decision Tree

P 200,000

P 1,000,000

P 3,000,000

P 900,000

P 900,000

P 900,000

Juana Magiting Decision Tree

ER .3 P200,000

?

Sign with Movie Co. .6 Medium Box Office

P1,000,000

ER .1

? Large Box Office

P 3,000,000

ER .3 P 900,000

?

Sign with TV Network .6 Medium Box Office

P 900,000

.1

Large Box Office

P 900,000

Juana Magiting Decision Tree - Solved

ER .3 P200,000

960,000

Sign with Movie Co. .6 Medium Box Office

P1,000,000

ER .1

960,000 Large Box Office

P3,000,000

ER .3 P900,000

900,000

Sign with TV Network .6 Medium Box Office

P900,000

.1

Large Box Office

P900,000

Decision Tree Problem

Dr. No has a patient who is very sick. Solution:

Without further treatment, this

patient will die in about 3 months.

The only treatment alternative is a

risky operation. The patient is

expected to live about 1 year if he

survives the operation; however, the

probability that the patient will not

survive the operation is 0.3.

decision problem. Show all the

probabilities and outcome values.

Let U(x) denote the patient’s Solution:

utility function, where x is

the number of months to The operation would be preferred as long as

live. U(3) < 0.7.

Assuming that U(12) = 1.0

and U(0) = 0, how low can

the patient’s utility for living

3 months be and still have

the operation be preferred?

assume that U(3) = 0.8.

Cost Complexity

• The cost complexity is measured by the following two parameters −

• Number of leaves in the tree, and

• Error rate of the tree.

Data Mining - Bayesian Classification

• Bayesian classification is based on Bayes' Theorem. Bayesian

classifiers are the statistical classifiers. Bayesian classifiers can predict

class membership probabilities such as the probability that a given

tuple belongs to a particular class.

Baye's Theorem

Bayes' Theorem is named after Thomas Bayes. There are two types of

probabilities −

• Posterior Probability [P(H/X)]

• Prior Probability [P(H)]

• According to Bayes' Theorem,

P(H/X)= P(X/H)P(H) / P(X)

Bayesian Belief Network

• Bayesian Belief Networks specify joint conditional probability

distributions. They are also known as Belief Networks, Bayesian

Networks, or Probabilistic Networks.

A Belief Network allows class conditional independencies to be defined

between subsets of variables.

It provides a graphical model of causal relationship on which learning can be

performed.

We can use a trained Bayesian Network for classification.

• There are two components that define a Bayesian Belief Network −

Directed acyclic graph

A set of conditional probability tables

Directed Acyclic Graph

• Each node in a directed acyclic graph represents a random variable.

• These variable may be discrete or continuous valued.

• These variables may correspond to the actual attribute given in the

data.

Directed Acyclic Graph Representation

• The following diagram shows a directed acyclic graph for six Boolean

variables.

causal knowledge.

person's family history of lung cancer, as well as

whether or not the person is a smoker.

It is worth noting that the variable Positive Xray is

independent of whether the patient has a family

history of lung cancer or that the patient is a

smoker, given that we know the patient has lung

cancer.

Conditional Probability Table

• The conditional probability table for the values of the variable

LungCancer (LC) showing each possible combination of the values of

its parent nodes, FamilyHistory (FH), and Smoker (S) is as follows −

Data Mining - Rule Based Classification

IF-THEN Rules

Rule-based classifier makes use of

a set of IF-THEN rules for Let us consider a rule

classification. We can express a R1,

rule in the following from − R1: IF age = youth AND

student = yes THEN

buy_computer = yes

IF condition THEN conclusion

Points to remember −

• The IF part of the rule is called rule antecedent or precondition.

• The THEN part of the rule is called rule consequent.

• The antecedent part the condition consist of one or more attribute

tests and these tests are logically ANDed.

• The consequent part consists of class prediction.

• R1: (age = youth) ^ (student = yes))(buys computer = yes)

Rule Extraction

• Here we will learn how to build a rule-based classifier by extracting IF-

THEN rules from a decision tree.

Points to remember −

• To extract a rule from a decision tree −

• One rule is created for each path from the root to the leaf node.

• To form a rule antecedent, each splitting criterion is logically ANDed.

• The leaf node holds the class prediction, forming the rule consequent.

Rule Induction Using Sequential Covering

Algorithm

• Sequential Covering Algorithm can be used to extract IF-THEN rules

form the training data. We do not require to generate a decision tree

first. In this algorithm, each rule for a given class covers many of the

tuples of that class.

• Some of the sequential Covering Algorithms are AQ, CN2, and RIPPER.

As per the general strategy the rules are learned one at a time. For

each time rules are learned, a tuple covered by the rule is removed

and the process continues for the rest of the tuples. This is because

the path to each leaf in a decision tree corresponds to a rule.

• Note − The Decision tree induction can be considered as learning a

set of rules simultaneously.

Rule Pruning

The rule is pruned is due to the following reason −

• The Assessment of quality is made on the original set of training data. The rule may

perform well on training data but less well on subsequent data. That's why the rule

pruning is required.

• The rule is pruned by removing conjunct. The rule R is pruned, if pruned version of R has

greater quality than what was assessed on an independent set of tuples.

FOIL is one of the simple and effective method for rule pruning. For a given rule R,

where pos and neg is the number of positive tuples covered by R, respectively.

Note − This value will increase with the accuracy of R on the pruning set. Hence, if the

FOIL_Prune value is higher for the pruned version of R, then we prune R.

Miscellaneous Classification Methods

• Genetic Algorithms

• The idea of genetic algorithm is derived from

natural evolution. In genetic algorithm, first of

all, the initial population is created. This initial

population consists of randomly generated

rules. We can represent each rule by a string of

bits.

For example, in a given training set, the samples

are described by two Boolean attributes such as

A1 and A2. And this given training set contains

two classes such as C1 and C2.

Miscellaneous Classification Methods

• Rough Set Approach

• We can use the rough set approach to discover

structural relationship within imprecise and noisy

data.

• Note − This approach can only be applied on

discrete-valued attributes. Therefore, continuous-

valued attributes must be discretized before its use.

• The Rough Set Theory is based on the establishment

of equivalence classes within the given training data.

The tuples that forms the equivalence class are

indiscernible. It means the samples are identical

with respect to the attributes describing the data.

Rule Based Reasoning (RBR)

• Rule Based Reasoning (RBR) requires us to elicit an explicit model of the

domain. As we all know and have experienced, knowledge acquisition has a

set of associated problems.

are not written clearly, it would lead to many sleepless nights of

debugging.

•

When rules are added or deleted from a rule-based system, the system has

to be checked for conflicting rules and redundant rules. An addition or

deletion of a case from the case base does not any further checking or

debugging. But it have to be noted that while it does not affect the

system’s functioning, it may have an impact on the outcome of the system.

Case Based Reasoning (CBR)

• Case Based Reasoning (CBR) does not require an explicit model.

Cases that identify the significant features are gathered and added to

the case base during development and after deployment.

• This is easier than creating an explicit model, as it is possible to

develop case bases without passing through the knowledge-

acquisition bottleneck.

• Maintenance with Case Based Systems are much easier and

straightforward.

Useful applications of data mining

• Future Healthcare

• Data mining holds great potential to improve health systems. It uses

data and analytics to identify best practices that improve care and

reduce costs. Researchers use data mining approaches like multi-

dimensional databases, machine learning, soft computing, data

visualization and statistics. Mining can be used to predict the volume

of patients in every category. Processes are developed that make sure

that the patients receive appropriate care at the right place and at the

right time. Data mining can also help healthcare insurers to detect

fraud and abuse.

Useful applications of data mining

• Market Basket Analysis

• Market basket analysis is a modelling technique based upon a theory

that if you buy a certain group of items you are more likely to buy

another group of items.

• This technique may allow the retailer to understand the purchase

behaviour of a buyer. This information may help the retailer to know

the buyer’s needs and change the store’s layout accordingly.

• Using differential analysis comparison of results between different

stores, between customers in different demographic groups can be

done.

Useful applications of data mining

• Education

• There is a new emerging field, called Educational Data Mining,

concerns with developing methods that discover knowledge from

data originating from educational Environments. The goals of EDM

are identified as predicting students’ future learning behaviour,

studying the effects of educational support, and advancing scientific

knowledge about learning. Data mining can be used by an institution

to take accurate decisions and also to predict the results of the

student. With the results the institution can focus on what to teach

and how to teach. Learning pattern of the students can be captured

and used to develop techniques to teach them.

Useful applications of data mining

• Manufacturing Engineering

• Knowledge is the best asset a manufacturing enterprise would

possess. Data mining tools can be very useful to discover patterns in

complex manufacturing process. Data mining can be used in system-

level designing to extract the relationships between product

architecture, product portfolio, and customer needs data. It can also

be used to predict the product development span time, cost, and

dependencies among other tasks.

Useful applications of data mining

• CRM

• Customer Relationship Management is all about acquiring and

retaining customers, also improving customers’ loyalty and

implementing customer focused strategies. To maintain a proper

relationship with a customer a business need to collect data and

analyse the information. This is where data mining plays its part. With

data mining technologies the collected data can be used for analysis.

Instead of being confused where to focus to retain customer, the

seekers for the solution get filtered results.

Useful applications of data mining

• Fraud Detection

• Billions of dollars have been lost to the action of frauds. Traditional

methods of fraud detection are time consuming and complex. Data

mining aids in providing meaningful patterns and turning data into

information. Any information that is valid and useful is knowledge. A

perfect fraud detection system should protect information of all the

users. A supervised method includes collection of sample records.

These records are classified fraudulent or non-fraudulent. A model is

built using this data and the algorithm is made to identify whether

the record is fraudulent or not.

Useful applications of data mining

• Intrusion Detection

• Any action that will compromise the integrity and confidentiality of a

resource is an intrusion. The defensive measures to avoid an intrusion

includes user authentication, avoid programming errors, and

information protection. Data mining can help improve intrusion

detection by adding a level of focus to anomaly detection. It helps an

analyst to distinguish an activity from common everyday network

activity. Data mining also helps extract data which is more relevant to

the problem.

Useful applications of data mining

• Lie Detection

• Apprehending a criminal is easy whereas bringing out the truth from

him is difficult. Law enforcement can use mining techniques to

investigate crimes, monitor communication of suspected terrorists.

This filed includes text mining also. This process seeks to find

meaningful patterns in data which is usually unstructured text. The

data sample collected from previous investigations are compared and

a model for lie detection is created. With this model processes can be

created according to the necessity.

Useful applications of data mining

• Customer Segmentation

• Traditional market research may help us to segment customers but

data mining goes in deep and increases market effectiveness. Data

mining aids in aligning the customers into a distinct segment and can

tailor the needs according to the customers. Market is always about

retaining the customers. Data mining allows to find a segment of

customers based on vulnerability and the business could offer them

with special offers and enhance satisfaction.

Useful applications of data mining

• Financial Banking

• With computerized banking everywhere huge amount of data is

supposed to be generated with new transactions. Data mining can

contribute to solving business problems in banking and finance by

finding patterns, causalities, and correlations in business information

and market prices that are not immediately apparent to managers

because the volume data is too large or is generated too quickly to

screen by experts. The managers may find these information for

better segmenting, targeting, acquiring, retaining and maintaining a

profitable customer.

Useful applications of data mining

• Corporate Surveillance

• Corporate surveillance is the monitoring of a person or group’s

behaviour by a corporation. The data collected is most often used for

marketing purposes or sold to other corporations, but is also regularly

shared with government agencies. It can be used by the business to

tailor their products desirable by their customers. The data can be

used for direct marketing purposes, such as the targeted

advertisements on Google and Yahoo, where ads are targeted to the

user of the search engine by analyzing their search history and emails.

Useful applications of data mining

• Research Analysis

• History shows that we have witnessed revolutionary changes in

research. Data mining is helpful in data cleaning, data pre-processing

and integration of databases. The researchers can find any similar

data from the database that might bring any change in the research.

Identification of any co-occurring sequences and the correlation

between any activities can be known. Data visualisation and visual

data mining provide us with a clear view of the data.

Useful applications of data mining

• Criminal Investigation

• Criminology is a process that aims to identify crime characteristics.

Actually crime analysis includes exploring and detecting crimes and

their relationships with criminals. The high volume of crime datasets

and also the complexity of relationships between these kinds of data

have made criminology an appropriate field for applying data mining

techniques. Text based crime reports can be converted into word

processing files. These information can be used to perform crime

matching process.

Useful applications of data mining

• Bioinformatics

• Data Mining approaches seem ideally suited for Bioinformatics, since

it is data-rich. Mining biological data helps to extract useful

knowledge from massive datasets gathered in biology, and in other

related life sciences areas such as medicine and neuroscience.

Applications of data mining to bioinformatics include genetic finding,

protein function inference, disease diagnosis, disease prognosis,

disease treatment optimization, protein and gene interaction

network reconstruction, data cleansing, and protein sub-cellular

location prediction.

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