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Informs presentation new ppt

  1. 1. Dan Steinberg N Scott CardellMykhaylo Golovnya November, 2011 Salford Systems
  2. 2. Data Mining Data Mining Cont.• Predictive Analytics • Statistics • OLAP• Machine Learning • Computer science • CART• Pattern Recognition • Database • SVM• Artificial Management • NN Intelligence • Insurance • CRISP-DM• Business • Finance • CRM Intelligence • Marketing • KDD• Data Warehousing • Electrical • Etc. Engineering • Robotics • Biotech and more
  3. 3.  Data mining is the search for patterns in data using modern highly automated, computer intensive methods ◦ Data mining may be best defined as the use of a specific class of tools (data mining methods) in the analysis of data ◦ The term search is key to this definition, as is “automated” The literature often refers to finding hidden information in data
  4. 4. • Study the phenomenon • Understand its nature Science • Try to discover a law • The laws usually hold for a long time •Collect some data •Guess the model (perhaps, using science) Statistics •Use the data to clarify and/or validate the model •If looks “fishy”, pick another model and do it again • Access to lots of data • No clue what the model might beData Mining • No long term law is even possible • Let the machine build a model • And let‟s use this model while we can
  5. 5.  Quest for the Holy Grail- build an algorithm that will always find 100% accurate models Absolute Powers- data mining will finally find and explain everything Gold Rush- with the right tool one can rip the stock- market and become obscenely rich Magic Wand- getting a complete solution from start to finish with a single button push Doomsday Scenario- all conventional analysts will eventually be replaced by smart computer chips
  6. 6.  This is known as “supervised learning” ◦ We will focus on patterns that allow us to accomplish two tasks  Classification  Regression This is known as “unsupervised learning” ◦ We will briefly touch on a third common task  Finding groups in data (clustering, density estimation) There are other patterns we will not discuss today including ◦ Patterns in sequences ◦ Connections in networks (the web, social networks, link analysis)
  7. 7.  CART® (Decision Trees, C4.5, CHAID among others) MARS® (Multivariate Adaptive Regression Splines) Artificial Neural Networks (ANNs, many commercial) Association Rules (Clustering, market basket analysis) TreeNet® (Stochastic Gradient Tree Boosting) RandomForests® (Ensembles of trees w/ random splits) Genetic Algorithms (evolutionary model development) Self Organizing Maps (SOM, like k-means clustering) Support Vector Machine (SVM wrapped in many patents) Nearest Neighbor Classifiers
  8. 8.  (Insert chart) In a nutshell: Use historical data to gain insights and/or make predictions on the new data
  9. 9.  Given enough learning iterations, most data mining methods are capable of explaining everything they see in the input data, including noise Thus one cannot rely on conventional (whole sample) statistical measures of model quality A common technique is to partition historical data into several mutually exclusive parts ◦ LEARN set is used to build a sequence of models varying in size and level of explained details ◦ TEST set is used to evaluate each candidate model and suggest the optimal one ◦ VALIDATE set is sometimes used to independently confirm the optimal model performance on yet another sample
  10. 10. Historical Data Build a Sequence of Learn Models Monitor Test Performance Confirm Validate Findings
  11. 11.  Analyst needs to indicate where the TEST data is to be found ◦ Stored in a separate file ◦ Selected at random from the available data ◦ Pre-selected from available data and marked by a special indicator Other things to consider ◦ Population: LEARN and TEST sets come from different populations (within-sample versus out-of-sample) ◦ Time: LEARN and TEST sets come from different time periods (within-time versus out-of-time) ◦ Aggregation: logically grouped records must be all included or all excluded within each set (self-correlation)
  12. 12.  Any model is built on past data! Fortunately, many models trace stable patterns of behavior However, any model will eventually have to be rebuilt: ◦ Banks like to refresh risk models about every 12 months ◦ Targeted marketing models are typically refreshed every 3 months ◦ Ad web-server models may be refreshed every 24 hours Credit risk score card expert Professor David Hand, University of London maintains: ◦ A predictive model is obsolete the day it is first deployed
  13. 13.  Model evaluation is at the core of the learning process (choosing the optimal model from a list of candidates) Model evaluation is also a key part in comparing performance of different algorithms Finally, model evaluation is needed to continuously monitor model performance over time In predictive modeling (classification and regression) all we need is a sample of data with known outcome; different evaluation criteria can then be applied There will never be “the best for all” model; the optimality is contingent upon current evaluation criterion and thus depends on the context in which the model is applied
  14. 14.  (insert graph) One usually computes some measure of average discrepancy between the continuous model predictions f and the actual outcome y ◦ Least Squared Deviation: R= Σ(y-f)^2 ◦ Least Absolute Deviation: R= Σ Iy-fI Fancier definitions also exist ◦ Huber-M Loss: is defined as a hybrid between the LS and LAD losses ◦ SVM Loss: ignores very small discrepancies and then switches to LAD-style The raw loss value is often re-expressed in relative terms as R-squared
  15. 15.  There are three progressively more demanding approaches to solving binary classification problems Division: a model makes the final class assignment for each observation internally ◦ Observations with identical class assignment are no longer discriminated ◦ A model needs to be rebuilt to change decision rules Rank: a model assigns a continuous score to each observation ◦ The score on its own bears no direct interpretation ◦ But, higher class score means higher likelihood of class presence in general (without precise quantitative statements) ◦ Any monotone transformation of scores is admissible ◦ A spectrum of decision rules can be constructed strictly based on varying score threshold without model rebuilding Probability: a model assigns a probability score to each observation ◦ Same as above, but the output is interpreted directly in the exact probabilistic terms
  16. 16.  Depending on the prediction emphasis, various performance evaluation criteria can be constructed for binary classification models The following list, far from being exhausting, presents some of the frequently used evaluation criteria ◦ Accuracy (more generally- Expected Cost)  Applicable to all models ◦ ROC Curve and Area Under Curve  Not Applicable to Division Models ◦ Gains and Lift  Not Applicable to Division Models ◦ Log-likelihood (a.k.a Cross-Entropy, Deviate)  Not Applicable to Division and Rank Models The criteria above are listed in the order from the least specific to the most It is not guaranteed that all criteria will suggest the same model as the optimal from a list of candidate models
  17. 17.  Most intuitive and also the weakest evaluation method that can be applied to any classification model Each record must be assigned to a specific class One first constructs a Prediction Success Table- a 2 by 2 matrix showing how many true 0s and 1s (rows) were classified by the model correctly or incorrectly (columns) The classification accuracy is then the number of correct class assignments divided by the sample size More general approaches will also include user supplied prior probabilities and cost matrix to compute the Expected Cost The example below reports prediction success tables for two separate models along with the accuracy calculations The method is not sensitive enough to emphasize larger class unbalance in model 1 (insert table)
  18. 18.  The classification accuracy approach assumes that each record has already been classified which is not always convenient ◦ Those algorithms producing a continuous score (Rank or Probability) will require a user-specified threshold to make final class assignments ◦ Different thresholds will result to different class assignments and likely different classification accuracies The accuracy approach focuses on the separating boundary and ignores fine probability structure outside the boundary Ideally, need an evaluator working directly with the score itself and not dependent on any external considerations like costs and thresholds Also, for Rank models the evaluator needs to be invariant with respect to monotone transformation of the scores so that the “spirit” of such models is not violated
  19. 19.  The following approach will take full advantage of the set of continuous scores produced by Rank or Probability models Pick one of the two target classes as the class in focus Sort a database by predicted score in descending order Choose a set of different score values ◦ Could be ALL of the unique scores produced by the model ◦ More often a set of scores obtained by binning sorted records into equal size bins For any fixed value of the score we can now compute: ◦ Sensitivity (a.k.a True Positive): Percent of the class in focus with the predicted scores above the threshold ◦ Specificity (a.k.a False Positive): Percent of the opposite class with the predicted scores below the threshold We then display the results as a plot of [sensitivity] versus [1-specificity] The resulting curve is known as the ROC Curve
  20. 20.  (insert graph) ROC Curves for three different rank models are shown No model can be considered as the absolute best in all times The optimal model selection will rest with the user Average overall performance can be measured as Area Under ROC Curve (AUC) ◦ ROC Curve (up to orientation) and AUC are invariant with respect to the focus class selection ◦ The best attainable AUS is always 1.0 ◦ AUC of a model with randomly assigned scores is 0.5 AUC can be interpreted ◦ Suppose we randomly and repeatedly pick one observation at random from the focus class and another observation from the opposite class ◦ Then AUC is the fraction of trials resulting to the focus class observation having greater predicted score than the opposite class observation ◦ AUC below 0.5 means that something is fundamentally wrong
  21. 21.  The following example justifies another slightly different approach to model evaluation Suppose we want to mail a certain offer to P fraction of the population Mailing to a randomly chosen sample will capture about P fraction of the responders (random sampling procedure) Now suppose that we have access to a response model which ranks each potential responder by a score Now if we sample the P fraction of the population targeting members with the highest predicted scores first (model guided sampling), we could now get T fraction of the responders which we expect to be higher than P The lift in P(th) percentile is defined as the ratio T/P Obviously, meaningful models will always produce lift greater than 1 The process can be repeated for all possible percentiles and the results can be summarized graphically as Gains and Cumulative Lift curves In practice, one usually first sorts observations by scores and then partitions sorted data into a fixed number of bins to save on calculations just like it is usually done for ROC curves
  22. 22.  (insert graphs and tables)
  23. 23.  (insert graphs) Lift in the given percentile provides a point measure of performance for the given population cutoff ◦ Can be viewed as the relative length of the vertical line segment connecting the gains curve at the given population cutoff Area Under the Gains curve (AUG): Provides an integral measure of performance across all bins ◦ Unlike AUC, the largest attainable value of AUG is (1-p/2), P being the fraction of responders in the population Just like ROC-curves, gains and lift curves for different models can intersect, so that performance-wise one model is better for one range of cutoffs while another model is better for a different range Unlike ROC-curve, gains and lift curves do depend on the class in focus ◦ For the dominant class, gains and lift curves degenerate to the trivial 45- degree line random case
  24. 24.  ROC, Gains, and lift curves together with AUC and AUG are invariant with respect to monotone transformation of the model scores ◦ Scores are only used to sort records in the evaluation set, the actual score values are of no consequence All these measures address the same conceptual phenomenon emphasizing different sides and thus can be easily derived from each other ◦ Any point (P,G) on a gains curve corresponds to the point (P,G/P) on the lift curve ◦ Suppose that the focus class occupies fraction F of the population; then any point (P,G) on a gains curve corresponds to the point {(P-FG)/(1-F),G} on the ROC curve  It follows that the ROC graph “pushes” the gains graph “away” from the 45 degree line  Dominant focus class (large F) is “pushed” harder so that the degeneracy of its gain curve disappears  In contrast, rare focus class (small F) has ROC curve naturally “close” to the gains curve All of these measures are widely used as robust performance evaluations in various practical applications
  25. 25.  When the output score can be interpreted as probability, a more specific evaluation criterion can be constructed to access probabilistic accuracy of the model We assume that the model generates P(X)-the conditional probability of 1 given X We also assume that the binary target Y is coded as -1 and +1 (only for notational convenience) The Cross-Entropy (CXE) criterion is then computed as (insert equation) ◦ The inner Log computes the log-odds of Y=1 ◦ The value itself is the negative log-likelihood assuming independence of responses ◦ Alternative notation assumes 0/1 target coding and uses the following formula (insert equation) ◦ The values produced by either of the formula will be identical to each other Model with the smallest CXE means the largest likelihood and thus considered to be the best in terms of capturing the right probability structure
  26. 26.  The example shows true non-monotonic conditional probability (dark blue curve) We generated 5,000 LEARN and TEST observations based on this probability model We report predicted responses generated by different modeling approaches ◦ Red- best accuracy MART model ◦ Yellow- best CXE MART model ◦ Cyan- univariate LOGIT model Performance-wise ◦ All models have identical accuracy but the best accuracy model is substantially worse in terms of CXE ◦ LOGIT can‟t capture departure from monotonicity as reported by CXE
  27. 27.  MARS is a highly-automated tool for regression Developed by Jerome H. Friedman of Stanford University ◦ Annals of statistics, 1991 dense 65 page article ◦ Takes some inspiration from its ancestor CART® ◦ Produces smooth curves and surfaces, not the step-functions of CART Appropriate target variables are continuous End result of a MARS run is a regression model ◦ MARS automatically chooses which variables to use ◦ Variables are optimally transformed ◦ Interactions are detected ◦ Model is self-tested to protect against over-fitting Can also perform well on binary dependent variables ◦ Censored survival model (waiting time models as in churn)
  28. 28.  Harrison, D. and D. Rubinfeld. Hedonic Housing Prices and Demand for Clean Air. Journal of Environmental Economics and Management v5, 81-102, 1978 506 census tracts in city of Boston for the year 1970 Goal: study relationship between quality of life variables and property values ◦ MV- median value of owner-occupied homes in tract („000s) ◦ CRIM- per capita crime rates ◦ NOX- concentration of nitrogen oxides (pphm) ◦ AGE- percent built before 1940 ◦ DIS- weighted distance to centers of employment ◦ RM- average number of rooms per house ◦ LSTAT- percent neighborhood „lower socio-economic status‟ ◦ RAD- accessibility to radial highways ◦ CHAS- borders Charles River (0/1) ◦ INDUS- percent non-retail business ◦ TAX- tax rate ◦ PT- pupil teacher ratio
  29. 29.  (insert graph) The dataset poses significant challenges to conventional regression modeling ◦ Clearly departure from normality, non-linear relationships, and skewed distributions ◦ Multicollinearity, mutual dependency, and outlying observations
  30. 30.  (insert graph) A typical MARS solution (univariate for simplicity) is shown above ◦ Essentially a piece-wise linear regression model with the continuity requirement at the transition points called knots ◦ The locations and number of knots were determined automatically to ensure the best possible model fit ◦ The solution can be analytically expressed as conventional regression equations
  31. 31.  Finding the one best knot in a simple regression is a straightforward search problem ◦ Try a large number of potential knots and choose one with the best R- squared ◦ Computation can be implemented efficiently using update algorithms; entire regression does not have to be rerun for every possible knot (just update X‟X matrices) Finding k knots simultaneously would require n^k order of computations assuming N observations To preserve linear problem complexity, multiple knot replacement is implemented in a step-wise manner: ◦ Need a forward/backward procedure ◦ The forward procedure adds knots sequentially one at a time  The resulting model will have many knots and overfit the training data ◦ The backward procedure removes least contributing knots one at a time  This produces a list of models of varying complexity ◦ Using appropriate evaluation criterion, identify the optimal model Resulting model will have approximately correct knot locations
  32. 32.  (insert graphs) True conditional mean has two knots at X=30 and X=60, observed data includes additional random error Best single knot will be at X=45, subsequent best locations are true knots around 30 and 60 The backward elimination step is needed to remove the redundant node at X=45
  33. 33.  Thinking in terms of knot selection works very well to illustrate splines in one dimension but unwieldy for working with a large number of variables simultaneously ◦ Need a concise notation easy to program and extend in multiple dimensions ◦ Need to support interactions, categorical variables, and missing values Basis functions (BF) provide analytical machinery to express the knot placement strategy Basis function is a continuous univariate transform that reduces predictor influence to a smaller range of values controlled by a parameter c (20 in the example below) ◦ Direct BF: max(X-c, 0)- the original range is cut below c ◦ Mirror BF: max (c-X, 0)- the original range is cut above c ◦ (insert graphs)
  34. 34.  The following model represents a 3-knot univariate solution for the Boston Housing Dataset using two direct and one mirror basis functions (insert equations) All three line segments have negative slope even though two coefficients are above zero (insert graph)
  35. 35.  MARS core technology: ◦ Forward step: add basis function pairs one at a time in conventional step- wise forward manner until the largest model size (specified by the user) is reached  Possible collinearity due to redundancy in pairs must be detected and eliminated  For categorical predictors define basis functions as indicator variables for all possible subsets of levels  To support interactions, allow cross products between a new candidate pair and basis functions already present in the model ◦ Backward step: remove basis functions one at a time in conventional step- wise backward manner to obtain a sequence of candidate models ◦ Use test sample or cross-validation to identify the optimal model size Missing values are treated by constructing missing value indicator (MVI) variables and nesting the basis functions within the corresponding MVIs Fast update formulae and smart computational shortcuts exist to make the MARS process as fast and efficient as possible
  36. 36.  OLS and MARS regression (insert graphs) We compare the results of classical linear regression and MARS ◦ Top three significant predictors are shown for each model ◦ Linear regression provides global insights ◦ MARS regression provides local insights and has superior accuracy  All cut points were automatically discovered by MARS  MARS model can be presented as a linear regression model in the BF space
  37. 37.  One of the oldest Data Mining tools for classification The method was originally developed by Fix and Hodges (1951) in an unpublished technical report Later on it was reproduced by Agrawala (1977), Silverman and Jones (1989) A review book with many references on the topic is Dasarathy (1991) Other books that treat the issue: ◦ Ripley B.D. 1996. Pattern Recognition and Neural Networks (chapter 6) ◦ Hastie T, Tibshirani R and Friedman J. 2001. The Elements of Statistical Learning Data Mining, Inference and Prediction (chapter 13) The underlying idea is quite simple: make the predictions by proximity or similarity Example: we are interested in predicting if a customer will respond to an offer. A NN classifier will do the following: ◦ Identify a set of people most similar to the customer- the nearest neighbor ◦ Observe what they have done in the past on a similar offer ◦ Classify by majority voting: if most of them are responders, predict a responder, otherwise, predict a non-responder
  38. 38.  (insert graphs) Consider binary classification problem Want to classify the new case highlighted in yellow The circle contains the nearest neighbors (the most similar cases) ◦ Number of neighbors= 16 ◦ Votes for blue class= 13 ◦ Votes for red class= 3 Classify the new case in the blue class. The estimated probability of belonging to the blue class is 13/16=0.8125 Similarly in this example: ◦ Classify the yellow instance in the blue class ◦ Classify the green instance in the red class ◦ The black point receives three votes from the blue class and another three from the red one- the resulting classification is indeterminate
  39. 39.  There are two decisions that should be made in advance before applying the NN classifier ◦ The shape of the neighborhood  Answers the question “Who are our nearest neighbors?” ◦ The number of neighbors (neighborhood size)  Answers the question “How many neighbors do we want to consider?” Neighborhood shape amounts to choosing the proximity/distance measure ◦ Manhattan distance ◦ Euclidean distance ◦ Infinity distance ◦ Adaptive distances Neighborhood size K can vary between 1 and N (the dataset size) ◦ K=1-classification is based on the closest case in the dataset ◦ K=N-classification is always to the majority class ◦ Thus K acts as a smoothing parameter and can be determined by using a test sample or cross-validation
  40. 40.  NN advantages ◦ Simple to understand and easy to implement ◦ The underlying idea is appealing and makes logical sense ◦ Available for both classification and regression problems  Predictions determined by averaging the values of nearest neighbors ◦ Can produce surprisingly accurate results in a number of applications  NN have been proved to perform equal or better than LDA, CART, Neural Networks and other approaches when applied to remote sensed data NN disadvantages ◦ Unlike decision trees, LDA, or logistic regression, their decision boundaries are not easy to describe and interpret ◦ No variable selection of any kind- vulnerable to noisy inputs  All the variables have the same weight when computing the distance, so two cases could be considered similar (or dissimilar) due to the role of irrelevant features (masking effects) ◦ Subject to the curse of dimensionality in high dimension datasets ◦ The technique is quite time consuming. However, Friedman et. Al. (1975 and 1977) have proposed fast algorithms
  41. 41.  Classification and Regression Trees (CART®)- original approach based on the “let the data decide local regions” concept developed by Breiman, Friedman, Olshen, and Stone in 1984 The algorithm can be summarized as: ◦ For each current data region, consider all possible orthogonal splits (based on one variable) into 2 sub-regions ◦ The best split is defined as the one having the smallest MSE after fitting a constant in each sub-region (regression) or the smallest resulting class impurity (classification) ◦ Proceed recursively until all structure in the training set has been completely exhausted- largest tree is produced ◦ Create a sequence of nested sub-trees with different amount of localization (tree pruning) ◦ Pick the best tree based on the performance on a test set or cross- validated One can view CART tree as a set of dynamically constructed orthogonal nearest neighbor boxes of varying sizes guided by the response variable (homogeneity of response within each box)
  42. 42.  CART is best illustrated with a famous example- the UCSD Heart Disease study ◦ Given the diagnosis of a heart attack based on  Chest pain, Indicative EKGs, Elevation of enzymes typically released by damaged heart muscle, etc. ◦ Predict who is at risk of a 2nd heart attack and early death within 30 days ◦ Prediction will determine treatment program (intensive care or not) For each patient about 100 variables were available, including: ◦ Demographics, medical history, lab results ◦ 19 noninvasive variables were used in the analysis  Age, gender, blood pressure, heart rate, etc. CART discovered a very useful model utilizing only 3 final variables
  43. 43.  (insert classification tree) Example of a CLASSIFICATION tree Dependent variable is categorical (SURVIVE, DIE) The model structure is inherently hierarchical and cannot be represented by an equivalent logistic regression equation Each terminal node describes a segment in the population All internal splits are binary Rules can be extracted to describe each terminal node Terminal node class assignment is determined by the distribution of the target in the node itself The tree effectively compresses the decision logic
  44. 44.  CART advantages: ◦ One of the fastest data mining algorithms available ◦ Requires minimal supervision and produces easy to understand models ◦ Focuses on finding interactions and signal discontinuities ◦ Important variables are automatically identified ◦ Handles missing values via surrogate splits  A surrogate split is an alternative decision rule supporting the main rule by exploiting local rank-correlation in a node ◦ Invariant to monotone transformations of predictors CART disadvantages: ◦ Model structure is fundamentally different from conventional modeling paradigms- may confuse reviewers and classical modelers ◦ Has limited number of positions to accommodate available predictors- ineffective at presenting global linear structure (but great for interactions) ◦ Produces coarse-grained piece-wise constant response surfaces
  45. 45.  (insert charts) 10-node CART tree was built on the cell phone dataset introduced earlier The root Node 1 displays details of TARGET variable in the training data ◦ 15.2% of the 830 households accepted the marketing offer CART tried all variable predictors one at a time and found out that partitioning the set of subjects based on the Handset Price variable is most effective at separating responders from non- responders at this point ◦ Those offered the phone with a price>130 contain only 9.9% responders ◦ Those offered a lower price<130 respond at 21.9% The process of splitting continues recursively until the largest tree is grown Subsequent tree pruning eliminates least important branches and creates a sequence of nested trees- candidate models
  46. 46.  (insert charts) The red nodes indicate good responders while the blue nodes indicate poor responders Observations with high values on a split variable always go right while those with low values go left Terminal nodes are numbered left to right and provide the following useful insights ◦ Node 1: young prospects having very small phone bill, living in specific cities are likely to respond to an offer with a cheap handset ◦ Node 5: mature prospects having small phone bill, living in specific cities (opposite Node1) are likely to respond to an offer with a cheap handset ◦ Nodes 6 and 8: prospects with large phone bill are likely to respond as long as the handset is cheap ◦ Node 10: “high-tech” prospects (having a pager) with large phone bill are likely to respond to even offers with expensive handset
  47. 47.  (insert graph, table and chart) A number of variables were identified as important ◦ Note the presence of surrogates not seen on the main tree diagram previously Prediction Success table reports classification accuracy on the test sample Top decile (10% of the population with the highest scores) captures 40% of the responders (lift of 4)
  48. 48.  (insert graphs) CART has a powerful mechanism of priors built into the core of the tree building mechanism Here we report the results of an experiment with prior on responders varying from 0.05 to 0.95 in increments of 0.05 The resulting CART models “sweep” the modeling space enforcing different sensitivity-specificity tradeoff
  49. 49.  As prior on the given class decreases The class assignment threshold increases Node richness goes up But class accuracy goes down PRIORS EQUAL uses the root node class ratio as the class assignment threshold- hence, most favorable conditions to build a tree PRIORS DATA uses the majority rule as the class assignment threshold- hence, difficult modeling conditions on unbalanced classes. In reality, a proper combination of priors can be found experimentally Eventually, when priors are too extreme, CART will refuse to build a tree. ◦ Often the hottest spot is a single node in the tree built with the most extreme priors with which CART will still build a tree. ◦ Comparing hotspots in successive trees can be informative, particularly in moderately-sized data sets.
  50. 50.  (insert graph) We have a mixture of two overlapping classes The vertical lines show root node splits for different sets of priors. (the left child is classified as red, the right child is classified as blue) Varying priors provides effective control over the tradeoff between class purity and class accuracy
  51. 51.  Hot spots are areas of data very rich in the event of interest, even though they could only cover a small fraction of the targeted group ◦ A set of prospects rich in responders ◦ A set of transactions with abnormal amount of fraud The varying-priors collection of runs introduced above gives perfect raw material in the search of hot spots ◦ Simply look at all terminal nodes across all trees in the collection and identify the highest response segments ◦ Also want to have such segments as large as possible ◦ Once identified, the rules leading to such segments (nodes) are easily available ◦ (insert graph) ◦ The graph on the left reports all nodes according to their target coverage and lift ◦ The blue curve connects the nodes most likely to be a hot spot
  52. 52.  (insert graph) Our next experiment (variable shaving) runs as follows: ◦ Build a CART model with the full set of predictors ◦ Check the variable importance, remove the least important variable and rebuild CART model ◦ Repeat previous step until all variables have been removed Six-variable model has the best performance so far Alternative shaving techniques include: ◦ Proceed by removing the most important variable- useful in removal of model “hijackers”- variables looking very strong on the train data but failing on the test data (e.g. ID variables) ◦ Set up nested looping to remove redundant variables from the inner positions on the variable importance list
  53. 53.  (insert tree) Many predictive models benefit from Salford Systems patent on “Structured Trees” Trees constrained in how they are grown to reflect decision support requirements ◦ Variables allowed/disallowed depending on a level in a tree ◦ Variable allowed/disallowed depending on a node size In mobile phone example: want tree to first segment on customer characteristics and then complete using price variables ◦ Price variables are under the control of the company ◦ Customer characteristics are beyond company control
  54. 54.  Various areas of research were spawned by CART We report on some of the most interesting and well developed approaches Hybrid models ◦ Combining CART with linear and Logistic Regression ◦ Combining CART with Neural Nets Linear combination splits Committees of trees ◦ Bagging ◦ Arcing ◦ Random Forest Stochastic Gradient Boosting (MART a.k.a TreeNet) Rule Fit and Path Finder
  55. 55.  (insert images) Grow a tree on training data Find a way to grow another tree, different from currently available (change something in set up) Repeat many times, say 500 replications Average results or create voting scheme ◦ For example, relate PD to fraction of trees predicting default for a given Beauty of the method is that every new tree starts with a complete set of data Any one tree can run out of data, but when that happens we just start again with a new tree and all the data (before sampling)
  56. 56.  Have a training set of size N Create a new data set of size N by doing sampling with replacement from the training set The new set (called bootstrap sample) will be different from the original: ◦ 36.5% of the original records are excluded ◦ 37.5% of the original records are included once ◦ 18% of the original records are included twice ◦ 6% of the original records are included three times ◦ 2% of the original records are included four or more times May do this repeatedly to generate numerous bootstrap samples Example: distribution of record weights in one realized bootstrap sample (insert table)
  57. 57.  To generate predicted response, multiple trees are combined via voting (classification) or averaging (regression) schemas Classification trees “vote” ◦ Recall that classification trees classify  Assign each case to ONE class only ◦ With 100 trees, 100 separate class assignment (votes) for each record ◦ Winner is the class with the most votes ◦ Fraction of votes can be used as a crude approximation to class probability ◦ Votes could be weighted- say by accuracy of individual trees or node sizes ◦ Class weights can be introduced to counter the effects of dominant classes Regression trees assign a real predicted value for each case ◦ Predictions are combined via averaging ◦ Results will be much smoother than from a single tree
  58. 58.  Breiman reports the results of running bootstrap aggregation (bagger) on four publicly available datasets from Statlog project In all cases the bagger shows substantial improvement in the classification accuracy It all comes at a price of no longer having a single interpretable model, substantially longer run time and greater demand on model storage space (insert tables)
  59. 59.  Bagging proceeds by independent, identically-distributed sampling draws Adaptive resampling: probability that a case is sampled varies dynamically ◦ Cases with higher current prediction errors have greater probability of being sampled in the next round ◦ Idea is to focus on these cases most difficult to predict correctly Similar procedure first introduced by Freund & Schapire (1996) Breiman variant (ARC-x4) is easier to understand: ◦ Suppose we have already grown K trees: let m= # times case i was misclassified (0≤m≤k) (insert equations) ◦ Weight=1 for cases with zero occurrences of misclassification ◦ Weight= 1+k^4 for cases with K misclassifications  Weigh rapidly becomes large is case is difficult to classify
  60. 60.  The results of running bagger and ARCer on the Boston Housing Data are reported below Bagger shows substantial improvement over the single- tree model ARCer shows marginal improvement over the bagger (insert table) Single tree now performs worse than stand alone CART run (R-squared=72%) because in bagging we always work with exploratory trees only Arcing performance beats MARS additive model but is still inferior to the MARS interactions model
  61. 61.  Boosting (and Bagging) are very slow and consume a lot of memory, the final models tend to be awkwardly large and unwieldy Boosting in general is vulnerable to overtraining ◦ Much better fit on training than on test data ◦ Tendency to perform poorly on future data ◦ Important to employ additional considerations to reduce overfitting Boosting is also highly vulnerable to errors in the data ◦ Technique designed to obsess over errors ◦ Will keep trying to “learn” patterns to predict miscoded data ◦ Ideally would like to be able to identify miscoded and outlying data and exclude those records from the learning process ◦ Documented in study by Dietterich (1998)  An Experimental Comparison of Three Methods for Constructing Ensembles of Decision Trees, Bagging, Boosting, and Randomization
  62. 62.  New approach for many data analytical tasks developed by Leo Breiman of University of California, Berkeley ◦ Co-author of CART® with Friedman, Olshen, and Stone ◦ Author of Bagging and Arcing approaches to combining trees Good for classification and regression problems ◦ Also for clustering, density estimation ◦ Outlier and anomaly detection ◦ Explicit missing value imputation Builds on the notions of committees of experts but is substantially different in key implementation details
  63. 63.  A random forest is a collection of single trees grown in a special way ◦ Each tree is grown on a bootstrap sample from the learning set ◦ A number R is specified (square root by defualt) such that is noticeably smaller than the total number of available predictors ◦ During tree growing phase, at each node only R predictors are randomly selected and tried The overall prediction is determined by voting (in classification) or averaging (in regression) The law of Large Numbers ensures convergence The key to accuracy is low correlation and bias To keep bias low, trees are grown to maximum depth
  64. 64.  Randomness is introduced in two distinct ways Each tree is grown on a bootstrap sample from the learning set ◦ Default bootstrap sample size equals original sample size ◦ Smaller bootstrap sample sizes are sometimes useful A number R is specified (square root by default) such that it is noticeably smaller than the total number of available predictors During tree growing phase, at each node only R predictors are randomly selected and tried. Randomness also reduces the signal to noise ratio in a single tree ◦ A low correlation between trees is more important than a high signal when many trees contribute to forming the model ◦ RandomForests™ trees often have very low signal strength, even when the signal strength of the forest is high.
  65. 65.  (insert graph) Gold- Average of 50 Base Learners Blue- Average of 100 Base Learners Red- Average of 500 Base Learners
  66. 66.  (insert graph) Averaging many base learners improves the signal to noise ratio dramatically provided that the correlation of errors is kept low Hundreds of base learners are needed for the most noticeable effect
  67. 67.  All major advantages of a single tree are automatically preserved Since each tree is grown on a bootstrap sample, one can ◦ Use out of bag samples to compute an unbiased estimate of the accuracy ◦ Use out of bag samples to determine variable importances There is no overfitting as the number of trees increases It is possible to compute generalized proximity between any pair of cases Based on proximities one can ◦ Proceed with a target-driven clustering solution ◦ Detect outliers ◦ Generate informative data views/projections using scaling coordinates ◦ Do missing value imputation Interesting approaches to expanding the methodology into survival models and the unsupervised learning domain
  68. 68.  RF introduces a novel way to define proximity between two observations: ◦ For a dataset of size N define an NXN matrix of proximities ◦ Initialize all proximities to zeroes ◦ For any given tree, apply the tree to the dataset ◦ If case i and case j both end up in the same node, increase proximity proxij between i and j by one ◦ Accumulate over all trees in RF and normalize by twice the number of trees in RF The resulting matrix provides intrinsic measure of proximity ◦ Observations that are “alike” will have proximities close to one ◦ The closer the proximity to 0, the more dissimilar cases i and j are ◦ The measure is invariant to monotone transformations ◦ The measure is clearly defined for any type of independent variables, including categorical
  69. 69.  TreeNet (TN) is a new approach to machine learning and function approximation developed by Jerome H, Friedman at Stanford University ◦ Co-author of CART® with Breiman, Olshen and Stone ◦ Author of MARS®, PRIM, Projection Pursuit, COSA, RuleFit™ and more Also known as Stochastic Gradient Boosting and MART (Multiple Additive Regression Trees) Naturally supports the following classes of predictive models ◦ Regression (continuous target, LS and LAD loss functions) ◦ Binary Classification (binary target, logistic likelihood loss function) ◦ Multinomial classification (multiclass target, multinomial likelihood loss function) ◦ Poisson regression (counting target, Poisson Likelihood loss function) ◦ Exponential survival (positive target with censoring) ◦ Proportional hazard cox survival model TN builds on the notions of committees of experts and boosting but is substantially different in key implementation details
  70. 70.  We focus on TreeNet because: It is the method introduced in the original Stochastic Gradient Boosting article It is the method used in many successful real world studies We have found it to be more accurate than the other methods ◦ Many decisions that affect many people are made using a TreeNet model ◦ Major new fraud detection engine uses TreeNet ◦ David Cossock of Yahoo recently published a paper on uses of TreeNet in web search TreeNet is a fully developed methodology. New capabilities include: ◦ Graphical display of the impact of any predictor ◦ New automated ways to test for existence of interactions ◦ New ways to identify and rank interactions ◦ Ability to constrain model: allow some interactions and disallow others. ◦ Method to recast TreeNet model as a logistic regression.
  71. 71.  Built on CART trees and thus ◦ Immune to outliers ◦ Selects variables ◦ Results invariant with monotone transformations of variables ◦ Handles missing values automatically Resistant to mislabeled target data ◦ In medicine cases are commonly misdiagnosed ◦ In business, occasionally non-responders flagged as “responders” Resistant to overtraining- generalizes very well Can be remarkably accurate with little effort Trains very rapidly; comparable to CART
  72. 72.  2007 PAKDD competition: home loans up-sell to credit card owners 2nd place ◦ Model built in half a day using previous year submission as a blueprint 2006 PAKDD competition: customer type discrimination 3rd place ◦ Model built in one day. 1st place accuracy 81.9% TreeNet accuracy 81.2% 2005 BI-CUP Sponsored by University of Chile attracted 60 competitors 2004 KDDCup “Most Accurate” 2003 “Duke University/NCR Teradata CRN modeling competition ◦ Most Accurate and Best Top Decile Lift on both in and out of time samples A major financial services company has tested TreeNet across a broad range of targeted marketing and risk models for the past two years ◦ TreeNet consistently outperforms previous best models (around 10% AUROC) ◦ TreeNet models can be built in a fraction of the time previously devoted ◦ TreeNet reveals previously undetected predictive power in data
  73. 73.  Begin with one very small tree as initial model ◦ Could be as small as ONE split generating 2 terminal nodes ◦ Typical model will have 3-5 splits in a tree, generating 4-6 terminal nodes ◦ Output is a continuous response surface regardless of the target type  Hence, Probability modeling type for classification ◦ Model is intentionally “weak”- shrink all model predictions towards zero by multiplying all predictions by a small positive learn rate Compute “residuals” for this simple model (prediction error) for every record in data ◦ The actual definition of the residual in this case is driven by the type of the loss function Grow second small tree to predict the residuals from first tree Continue adding more and more trees until a reasonable amount has been added ◦ It is important to monitor accuracy on an independent test sample
  74. 74.  (insert chart)
  75. 75.  Trees are kept small (2-6 nodes common) Updates are small- can be as small as .01,.001,.0001 Use random subsets of the training data in each cycle ◦ Never train on all the training data in any one cycle Highly problematic cases are IGNORED ◦ If model prediction starts to diverge substantially from observed data, that data will not be used in further updates TN allows very flexible control over interactions: ◦ Strictly Additive Models (no interactions allowed) ◦ Low level interactions allowed ◦ High level interactions allowed ◦ Constraints: only specific interactions allowed (TN PRO)
  76. 76.  As TN models consist of hundreds or even thousands of trees there is no useful way to represent the model via a display of one or two trees However, the model can be summarized in a variety of ways ◦ Partial Dependency Plots: These exhibit the relationship between the target and any predictor- as captured by the model ◦ Variable Importance Rankings: These stable rankings give an excellent assessment of the relative importance of predictors ◦ ROC and Gains Curves: TN Models produce scores that are typically unique for each scored record ◦ Confusion Matrix: Using an adjustable score threshold this matrix displays the model false positive and false negative rates TreeNet models based on 2-node trees by definition EXCLUDE interactions ◦ Model may be highly nonlinear but is by definition strictly additive ◦ Every term in the model is based on a single variable (single split) Build TreeNet on a larger tree (default is 6 nodes) ◦ Permits up to 5-way interaction but in practice is more like 3-way interaction Can conduct informal likelihood ratio test TN(2-node) versus TN(6- node) Large differences signal important interactions
  77. 77.  (insert graphs) The results of running TN on the Boston Housing Database are shown All of the key insights agree with previous findings by MARS and CART
  78. 78.  Slope reverses due to interaction Note that the dominant pattern is downward sloping, but that a key segment defined by the 3rd variable is upward sloping (insert graph)
  79. 79.  CART: Model is one optimized Tree ◦ Model is easy to interpret as rules  Can be useful for data exploration, prior to attempting a more complex model ◦ Model can be applied quickly with a variety of workers:  A series of questions for phone bank operators to detect fraudulent purchases  Rapid triage in hospital emergency rooms ◦ In some cases may produce the best or the most predictive model, for example in classification with a barely detectable signal ◦ Missing values handled easily and naturally. Can be deployed effectively even when new data have a different missingness pattern Random Forests: combination of many LARGE trees ◦ Unique nonparametric distance metric that works in high dimensional spaces ◦ Often predicts well when other models work poorly, e.g. data with high level interactions ◦ In the most difficult data sets can be the best way to identify important variables Tree Net: combination of MANY small trees ◦ Best overall forecast performance in many cases ◦ Constrained models can be used to test the complexity of the data structure non-parametrically ◦ Exceptionally good with binary targets
  80. 80.  Neural Networks, combination of a few sigmoidal activation functions ◦ Very complex models can be represented in a very compact form ◦ Can accurately forecast both levels and slopes and even higher order derivatives ◦ Can efficiently use vector dependent variables  Cross equation constraints can be imposed. (see Symmetry constraints for feedforward network models of gradient systems, Cardell, Joerding, and Li, IEEE Transactions on Neural Networks, 1993) ◦ During deployment phase, forecasts can be computed very quickly  High voltage transmission lines use a neural network to detect whether there has been a lightning strike and are fast enough to shut down the line before it can be damaged Kernel function estimators, use a local mean or a local regression ◦ Local estimates easy to understand and interpret ◦ Local regression versions can estimate slopes and levels ◦ Initial estimation can be quick
  81. 81.  Random Forests: ◦ Models are large, complex and un-interpretable ◦ Limited to moderate sample sizes (usually less than 100,000 observations) ◦ Hard to tell in advance which case Random Forests will work well on ◦ Deployed models require substantial computation Tree Net ◦ Models are large and complex, interpretation requires additional work ◦ Deployed models either require substantial computation or post- processing of the original model into a more compact form CART ◦ In most cases models are less accurate than TreeNet ◦ Works poorly in cases where effects are approximately linear in continuous variables or additive over many variables
  82. 82.  Neural Networks: ◦ Neural Networks cover such a wide variety of models that no good widely- applicable modeling software exists or may even be possible  The most dramatic successes have been with Neural Network models that are idiosyncratic to the specific case, and ere developed with great effort  Fully optimized Neural Network parameter estimates can be very difficult to compute, and sometimes perform substantially worse than initial statistically inferior estimates. (this is called the “over training” issue) ◦ In almost all cases initial estimation is very compute intensive ◦ Limited to very small numbers of variables (typically between about 6 and 20 depending on the application) Kernel Function Estimators: ◦ Deployed models can require substantial computation ◦ Limited to small numbers of variables ◦ Sensitive to distance measures. Even a modest number of variables can degrade performance substantially, due to the influence of relatively unimportant variables on the distance metric
  83. 83.  Breiman, L., J. Friedman, R. Olshen and C. Stone (1984), Classification and Regression Trees, Pacific Grove: Wadsworth Breiman, L. (1996). Bagging predictors. Machine Learning, 24, 123-140. Hastie, T., Tibshirani, R., and Friedman, J.H (2000). The Elements of Statistical Learning. Springer. Freund, Y. & Schapire, R. E. (1996). Experiments with a new boosting algorithm. In L. Saitta, ed., Machine Learning: Proceedings of the Thirteenth National Conference, Morgan Kaufmann, pp. 148-156. Friedman, J.H. (1999). Stochastic gradient boosting. Stanford: Statistics Department, Stanford University. Friedman, J.H. (1999). Greedy function approximation: a gradient boosting machine. Stanford: Statistics Department, Stanford University.

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