Machine Learning in Business

Introduction

This content relates to the Datacamp series called Machine Learning for Business.

Data Lifecyle

• Collection
• Storage
• Preparation
• Analysis
  • Look at data and build reports
• Model prototype & testing
  • Use statistics / ML to create a function predicting an outcome
• Model deployment in production

Types

• Supervised
  • Goal is to better understand the impact of variables on output
    • Target variable / dependent variable
    • Input features / independent variables
  • Types
    • Classification when output is categorical (fraud or not)
    • Regression when output is continuous ($ spent)
  • Test/train
    • Sometimes split data into groups, test v. train
    • Prevents over-learning
• Unsupervised
  • Goal to find natural groupings in the data (clusters)

Error

All models have error. This can come from 3 sources:

• Sampling errors when our data does not perfectly represent the largest population
• Measurement errors when our methods for collecting data do not perfectly match the underlying construct
• Model error when our model does not match reality.

As an example, consider asking college students for their favorite artist. We grab 10 students at random, and ask them for a list of their top 3 artists. This has the following errors:

• Sampling - the 10 do not perfectly represent all students
• Measurement - asking students for a cold-recall and putting them on the spot leads to some not remembering certain artists, or changing their answers in response to peer pressure from other students around them
• Model - asking for the top 3 by rank may not be an appropriate model for measuring artist popularity. A 1-5 scale may be more appropriate.

Categorical Prediction

Imagine we are predicting which customers will drop our service.

We have 6 customers:

• A Dropped, Predicted Dropped (success!)

• B Dropped, Predicted Dropped (success!)

• C Dropped, Not predicted

• D Stayed, Predicted Dropped

• E Stayed, Predicted Dropped

• F Stayed, Not predicted (success!)

• Accuracy

  • Correctly classified / all cases
  • (3 including A, B, & F) / 6 = 50% accuracy

• Precision:

  • Predicted Correctly / Predicted
  • (A, B) / (A, B, D, E) = 2 / 4 = 50% precision

• Recall

  • Dropped customers predicted / Dropped customers
  • (A, B) / (A, B, C) = 2/3 = 66% recall

Continuous Prediction

We need to calculate error, or the difference between the actual result and our model.

We have 6 customers:

• A $10, predicted $10
• B $12, predicted $10
• C $8, predicted $10

RSME

RSME is the squared difference of each. https://www.statology.org/how-to-interpret-rmse/

Calculate the squared difference of each point, (10 - 10)^2 + (12 - 10)^2 + (8 - 10)^4 = 20

Divide by the number of observations, and take the square root. (20 / 3) ^ .5 = 2.58

Residuals

We may also want to see the difference between our prediction and actual values. (10 - 10), (12 - 10), (8 - 10) –> (0, 2, -2)

So, the RSME is the square root of the variance. This is the average distance between observed data values and predicted.

R-squared

The coefficient of determination tells us the proportion of variance in our dependent variable that can be explained by our independent variables.

It ranges from 0 to 1. Generally, the higher the number the better the prediction. This will be more fully explained in the regression sections.

Jobs

• Collection -
  • Infrastructure owners - mostly software/system engineers. Programmer and business owners
• Storage
  • DBMS / database management system
  • DB Admin
• Preparation
  • Data engineer
  • Data lake, warehouse, etc…
  • Move from transaction database into analysis database
• Analysis
  • Data analysts create dashboards and reports
• Model
  • Data science / machine learning engineer
  • Former work more in data definition / problem scoping, and latter in producing workable code in production.

Inference v. Prediction

• Inference
  • Goal is to develop understanding
  • Usually statistical measure, such as regression / correlation
  • Whitebox
  • Causal, x causes y…
  • Emphasis on being able to interpret results
• Prediction
  • Goal is to optimize outcome variable
  • Hard to interpret, such as neural networks
  • Blackbox
  • Emphasis on performance (speed, resources) / accuracy (target variable)
• Observation v. Experiment
  • Observation is analyzing existing data
  • Experiment manipulates experience