Why Data Mining
Credit ratings/targeted marketing:
Given a database of 100,000 names, which persons are
the least likely to default on their credit cards?
Identify likely responders to sales promotions
Fraud detection
Which types of transactions are likely to be fraudulent,
given the demographics and transactional history of a
particular customer?
Customer relationship management:
Which of my customers are likely to be the most loyal,
and which are most likely to leave for a competitor? :
Data Mining helps extract
such information
Data mining
Process of semi-automatically analyzing
large databases to find patterns that are:
valid: hold on new data with some certainity
novel: non-obvious to the system
useful: should be possible to act on the item
understandable: humans should be able to
interpret the pattern
Also known as Knowledge Discovery in
Databases (KDD)
Applications
Banking: loan/credit card approval
predict good customers based on old customers
Customer relationship management:
identify those who are likely to leave for a competitor.
Targeted marketing:
identify likely responders to promotions
Fraud detection: telecommunications,
financial transactions
from an online stream of event identify fraudulent events
Manufacturing and production:
automatically adjust knobs when process parameter changes
Applications (continued)
Medicine: disease outcome, effectiveness of
treatments
analyze patient disease history: find relationship
between diseases
Molecular/Pharmaceutical: identify new drugs
Scientific data analysis:
identify new galaxies by searching for sub clusters
Web site/store design and promotion:
find affinity of visitor to pages and modify layout
The KDD process
Problem fomulation
Data collection
subset data: sampling might hurt if highly skewed data
feature selection: principal component analysis,
heuristic search
Pre-processing: cleaning
name/address cleaning, different meanings (annual,
yearly), duplicate removal, supplying missing values
Transformation:
map complex objects e.g. time series data to features
e.g. frequency
Choosing mining task and mining method:
Result evaluation and Visualization:
Knowledgediscoveryisaniterativeprocess
Relationship with other
fields
Overlaps with machine learning, statistics,
artificial intelligence, databases,
visualization but more stress on
scalability of number of features and instances
stress on algorithms and architectures
whereas foundations of methods and
formulations provided by statistics and
machine learning.
automation for handling large, heterogeneous
data
Some basic operations
Predictive:
Regression
Classification
Collaborative Filtering
Descriptive:
Clustering / similarity matching
Association rules and variants
Deviation detection
Classification
(Supervised learning)
Classification
Given old data about customers and
payments, predict new applicants loan
eligibility.
Previouscustomers
Age
Salary
Profession
Location
Customertype
Classifier
Decisionrules
Salary>5L
Prof.=Exec
Newapplicantsdata
Good/
bad
Classification methods
Goal: Predict class Ci = f(x1, x2, .. Xn)
Regression: (linear or any other
polynomial)
a*x1 + b*x2 + c = Ci.
Nearest neighour
Decision tree classifier: divide decision
space into piecewise constant regions.
Probabilistic/generative models
Neural networks: partition by non-linear
boundaries
Nearest neighbor
Define proximity between instances, find
neighbors of new instance and assign
majority class
Case based reasoning: when attributes are
more complicated than real-valued.
Pros
+Fasttraining
Cons
Slowduringapplication.
Nofeatureselection.
Notionofproximityvague
Decision trees
Tree where internal nodes are simple
decision rules on one or more
attributes and leaf nodes are
predicted class
labels.
Salary<1M
Prof=teacher
Good
Bad
Age<30
Bad
Good
Decision tree classifiers
Widely used learning method
Easy to interpret: can be re-represented as if-thenelse rules
Approximates function by piece wise constant
regions
Does not require any prior knowledge of data
distribution, works well on noisy data.
Has been applied to:
classify medical patients based on the disease,
equipment malfunction by cause,
loan applicant by likelihood of payment.
Pros and Cons of decision
trees
Pros
+ Reasonable training
time
+ Fast application
+ Easy to interpret
+ Easy to implement
+ Can handle large
number of features
Cons
Cannot handle complicated
relationship between
features
simple decision boundaries
problems with lots of
missing
data
Moreinformation:
http://www.stat.wisc.edu/~limt/treeprogs.html
Neural network
Set of nodes connected by directed
weighted edges
AmoretypicalNN
BasicNNunit
x1
x2
x3
w1
w2
w3
o ( wi xi )
i 1
1
( y)
1 e y
x1
x2
x3
Outputnodes
Hiddennodes
Neural networks
Useful for learning complex data like
handwriting, speech and image
recognition
Decisionboundaries:
Linearregression
Classificationtree
Neuralnetwork
Pros and Cons of Neural
Network
Pros
+Can learn more
complicated
class boundaries
+ Fast application
+ Can handle large number
of
features
Cons
Slow training time
Hard to interpret
Hard to implement:
trial
and error for choosing
number of nodes
Conclusion: Use neural nets only if
decision-trees/NN fail.
Bayesian learning
Assume a probability model on generation of
p(d | c j ) p(c j )
data.
predicted class : c max p ( c j | d ) max
cj
cj
p(d )
Apply bayes theorem ton find most likely class
p(c j )
as:
c max
p(ai | c j )
cj
p(d )
i 1
Nave bayes: Assume attributes conditionally
independent given class value
Clustering or
Unsupervised Learning
Clustering
Unsupervised learning when old data with
class labels not available e.g. when
introducing a new product.
Group/cluster existing customers based on
time series of payment history such that
similar customers in same cluster.
Key requirement: Need a good measure of
similarity between instances.
Identify micro-markets and develop
policies for each
Applications
Customer segmentation e.g. for targeted
marketing
Group/cluster existing customers based on time
series of payment history such that similar
customers in same cluster.
Identify micro-markets and develop policies for each
Collaborative filtering:
group based on common items purchased
Text clustering
Compression
Distance functions
Numeric data: euclidean, manhattan distances
Categorical data: 0/1 to indicate
presence/absence followed by
Hamming distance (# dissimilarity)
Jaccard coefficients: #similarity in 1s/(# of 1s)
data dependent measures: similarity of A and B
depends on co-occurance with C.
Combined numeric and categorical data:
weighted normalized distance:
Clustering methods
Hierarchical clustering
agglomerative Vs divisive
single link Vs complete link
Partitional clustering
distance-based: K-means
model-based: EM
density-based:
Partitional methods: Kmeans
Criteria: minimize sum of square of distance
Between each point and centroid of the cluster.
Between each pair of points in the cluster
Algorithm:
Select initial partition with K clusters: random,
first K, K separated points
Repeat until stabilization:
Assign each point to closest cluster center
Generate new cluster centers
Adjust clusters by merging/splitting
Collaborative Filtering
Given database of user preferences,
predict preference of new user
Example: predict what new movies you will
like based on
your past preferences
others with similar past preferences
their preferences for the new movies
Example: predict what books/CDs a person
may want to buy
(and suggest it, or give discounts to
tempt customer)
Collaborative
recommendation
Possibleapproaches:
Averagevotealongcolumns[Samepredictionforall]
Weightvotebasedonsimilarityoflikings[GroupLens]
RangeelaQSQT
RangeelaQSQT
Smita
Vijay
Mohan
Rajesh
Nina
Nitin
100 daysAnand Sholay Deewar Vertigo
Cluster-based approaches
External attributes of people and movies to cluster
age, gender of people
actors and directors of movies.
[ May not be available]
Cluster people based on movie preferences
misses information about similarity of movies
Repeated clustering:
cluster movies based on people, then people based on
movies, and repeat
ad hoc, might smear out groups
Example of clustering
QSQT Rangeela
100 daysAnand
Sholay
Rangeela
Anand
QSQT
100 days
VertigoDeewar
DeewarVertigo
Sholay
Smita
Vijay
Vijay
Rajesh
Mohan
Mohan
Rajesh
Nina
Nina
Smita
Nitin
Nitin
??
??
Model-based approach
People and movies belong to unknown classes
Pk = probability a random person is in class k
Pl = probability a random movie is in class l
Pkl = probability of a class-k person liking a classl movie
Gibbs sampling: iterate
Pick a person or movie at random and assign to a
class with probability proportional to Pk or Pl
Estimate new parameters
Need statistics background to understand details
Association Rules
Association rules
T
Milk,cereal
Tea,milk
Given set T of groups of items
Example: set of item sets
Tea,rice,bread
purchased
Goal: find all rules on itemsets of
the form a-->b such that
support of a and b > user threshold
s
conditional probability (confidence)
of b given a > user threshold c
Example: Milk --> bread
Purchase of product A --> service
cereal
Variants
High confidence may not imply high
correlation
Use correlations. Find expected
support and large departures from
that interesting..
see statistical literature on contingency
tables.
Still too many rules, need to prune...
Prevalent Interesting
Analysts already
know about
prevalent rules
Interesting rules are
those that deviate
from prior
expectation
Minings payoff is in
finding surprising
phenomena
Zzzz...
1995
Milkand
cerealsell
together!
1998
Milkand
cerealsell
together!
What makes a rule
surprising?
Cannot be trivially
derived from simpler
rules
Correlation between
Does not match
prior expectation
milk and cereal
remains roughly
constant over time
Milk 10%, cereal 10%
Milk and cereal 10%
surprising
Eggs 10%
Milk, cereal and eggs
0.1% surprising!
Expected 1%
Applications of fast
itemset counting
Find correlated events:
Applications in medicine: find redundant
tests
Cross selling in retail, banking
Improve predictive capability of classifiers
that assume attribute independence
New similarity measures of categorical
attributes [Mannila et al, KDD 98]
Data Mining in Practice
Application Areas
Industry
Application
Finance
Credit Card Analysis
Insurance
Claims, Fraud Analysis
Telecommunication Call record analysis
Transport
Logistics management
Consumer goods
promotion analysis
Data Service providers
Value added data
Utilities
Power usage analysis
Why Now?
Data is being produced
Data is being warehoused
The computing power is available
The computing power is affordable
The competitive pressures are strong
Commercial products are available
Data Mining works with
Warehouse Data
Data Warehousing provides
the Enterprise with a memory
Data Mining provides the
Enterprise with
intelligence
Usage scenarios
Data warehouse mining:
assimilate data from operational sources
mine static data
Mining log data
Continuous mining: example in process control
Stages in mining:
data selection pre-processing: cleaning
transformation mining result evaluation
visualization
Mining market
Around 20 to 30 mining tool vendors
Major tool players:
Clementine,
IBMs Intelligent Miner,
SGIs MineSet,
SASs Enterprise Miner.
All pretty much the same set of tools
Many embedded products:
fraud detection:
electronic commerce applications,
health care,
customer relationship management: Epiphany
Vertical integration:
Mining on the web
Web log analysis for site design:
what are popular pages,
what links are hard to find.
Electronic stores sales enhancements:
recommendations, advertisement:
Collaborative filtering: Net perception, Wisewire
Inventory control: what was a shopper
looking for and could not find..
OLAP Mining integration
OLAP (On Line Analytical Processing)
Fast interactive exploration of multidim.
aggregates.
Heavy reliance on manual operations for
analysis:
Tedious and error-prone on large
multidimensional data
Ideal platform for vertical integration of mining
but needs to be interactive instead of batch .
State of art in mining OLAP
integration
Decision trees [Information discovery, Cognos]
find factors influencing high profits
Clustering [Pilot software]
segment customers to define hierarchy on that
dimension
Time series analysis: [Seagates Holos]
Query for various shapes along time: eg. spikes,
outliers
Multi-level Associations [Han et al.]
find association between members of dimensions
Sarawagi [VLDB2000]
Data Mining in Use
The US Government uses Data Mining to track
fraud
A Supermarket becomes an information broker
Basketball teams use it to track game strategy
Cross Selling
Target Marketing
Holding on to Good Customers
Weeding out Bad Customers
Some success stories
Network intrusion detection using a combination of sequential
rule discovery and classification tree on 4 GB DARPA data
Won over (manual) knowledge engineering approach
http://www.cs.columbia.edu/~sal/JAM/PROJECT/ provides good detailed
description of the entire process
Major US bank: customer attrition prediction
First segment customers based on financial behavior: found 3 segments
Build attrition models for each of the 3 segments
40-50% of attritions were predicted == factor of 18 increase
Targeted credit marketing: major US banks
find customer segments based on 13 months credit balances
build another response model based on surveys
increased response 4 times -- 2%
