DISCRIMINANT ANALYSIS

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SLIDE 7-1
17-1

What is Discriminant Analysis?

● Discriminant analysis is used to predict group
membership.
● This technique is used to classify individuals/objects
into one of the alternative groups on the basis of a
set of predictor variables.
● The dependent variable in discriminant analysis is
categorical whereas the independent or predictor
variables are either interval or ratio scale in nature.
● When there are two groups (categories) of
dependent variable, we have two-group discriminant
analysis and when there are more than two groups, it
is a case of multiple discriminant analysis.
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Objectives of Discriminant
Analysis
The objectives of discriminant analysis are the following:

● To find a linear combination of variables that discriminate

between categories of dependent variable in the best possible
manner.
● To find out which independent variables are relatively better in
discriminating between groups.
● To determine the statistical significance of the discriminant
function and whether any statistical difference exists among
groups in terms of predictor variables.
● To develop the procedure for assigning new objects, firms or
individuals whose profile but not the group identity are known to
one of the two groups.
● To evaluate the accuracy of classification, i.e., the percentage of
customers that it is able to classify correctly.
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Uses of Discriminant Analysis

Some of the uses of Discriminant Analysis are:

● Scale construction: Discriminant analysis is

used to identify the variables/statements that are
discriminating and on which people with diverse
views will respond differently.

● Perceptual mapping: The technique is also used

extensively to create attribute-based spatial maps
of the respondent’s mental positioning of brands.
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Uses of Discriminant Analysis

● Segment discrimination: To understand what are
the key variables on which two or more groups differ
from each other, this technique is extremely useful.
Questions to which one may seek answers are as
follows:
● What are the demographic variables on which potentially
successful salesmen and potentially unsuccessful salesmen
differ?
● What are the variables on which users/non-users of a product
can be differentiated?
● What are the economic and psychographic variables on which
price-sensitive and non-price sensitive customers be
differentiated?
● What are the variables on which the buyers of local/national
brand of a product be differentiated?
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Discriminant analysis model

● The mathematical form of the discriminant
analysis model is:

Where,
Y = Dependent variable
bs = Coefficients of independent variables
Xs = Predictor or independent variables

• Dependent Variable Y should be a categorized variable whereas

the independent variables Xs should be continuous. (interval or
ratio scale)
• Dependent variable should be coded as 0, 1 or 1, 2 in case of
two-group discriminant model.
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Discriminant analysis model

● The method of estimating bs is based on the principle that

the ratio of between group sum of squares to within group
sum of squares be maximized. This will make the groups
differ as much as possible on the values of the
discriminant function.
● After having estimated the model, the bs coefficients (also
called discriminant coefficient) are used to calculate Y, the
discriminant score by substituting the values of Xs in the
estimated discriminant model.
● The discriminant function with a constant term is called un-
standardized whereas without the constant term is known
as standardized discriminant function
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Definitions of Key Terms used in
Discriminant Analysis
● Eigenvalue - The basic principle in the estimation of a
discriminant function is that the variance between the groups
relative to the variance within the group should be maximized.
The ratio of between group variance to within group variance is
called Eigenvalue.
● Canonical Correlation - Canonical correlation is the simple
correlation coefficient between the discriminant score and the
group membership. (0, 1 or 1,2 etc.)
● Wilks’ Lambda – It is given by ratio of within group sum of
squares to total sum of squares. The Wilks’ lambda takes a
value between 0 and 1 and lower the value of Wilks’ lambda, the
higher is the significance of the discriminant function. A
statistically significant function will enhance the reliability that the
differentiation between the groups exists.
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Definitions of Key Terms used in
Discriminant Analysis
● Cut-off Score for Classification - The cut-off
score used for classification is the average of two
group centroid when the size of the sample in the
two groups are same.
In case the size of sample in the two groups is
not equal, the cut-off score for classification is
computed as given below:
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Definitions of Key Terms used in
Discriminant Analysis
● Group Centroids – The value of un-standardized canonical
discriminant function evaluated at the group means is called group
centroids.
● Standardized discriminant coefficient - The absolute values of the
coefficients in standardized discriminant function indicate the relative
contribution of the variables in discriminating between the two groups.
● Structural coefficients - Another way of finding the relative
contributions of the predictor variables in discriminating between groups
is through comparing the structural coefficients of the predictor
variables. The structural coefficients are obtained by computing the
correlation between the discriminant score and each of the independent
variables.
RELATIVE IMPORTANCE OF THE VARIABLES OBTAINED BY TWO
METHODS MAY DIFFER IF THERE IS A HIGH DEGREE OF
CORRELATION AMONG THE PREDICTOR VARIABLES.
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Assessing Classification Accuracy

● Hit ratio

● Maximum vs proportional chance criterion

● Cross-validation

● Out-of-sample Performance