Data mining involves exploring and analyzing large amounts of data to find patterns for big data. The techniques came out of the fields of statistics and artificial intelligence (AI), with a bit of database management thrown into the mix.
Generally, the goal of the data mining is either classification or prediction. In classification, the idea is to sort data into groups. For example, a marketer might be interested in the characteristics of those who responded versus who didn’t respond to a promotion.
These are two classes. In prediction, the idea is to predict the value of a continuous variable. For example, a marketer might be interested in predicting those who will respond to a promotion.
Typical algorithms used in data mining include the following:
Classification trees: A popular data-mining technique that is used to classify a dependent categorical variable based on measurements of one or more predictor variables. The result is a tree with nodes and links between the nodes that can be read to form if-then rules.
Logistic regression: A statistical technique that is a variant of standard regression but extends the concept to deal with classification. It produces a formula that predicts the probability of the occurrence as a function of the independent variables.
Neural networks: A software algorithm that is modeled after the parallel architecture of animal brains. The network consists of input nodes, hidden layers, and output nodes. Each unit is assigned a weight. Data is given to the input node, and by a system of trial and error, the algorithm adjusts the weights until it meets a certain stopping criteria. Some people have likened this to a black–box approach.
Clustering techniques like K-nearest neighbors: A technique that identifies groups of similar records. The K-nearest neighbor technique calculates the distances between the record and points in the historical (training) data. It then assigns this record to the class of its nearest neighbor in a data set.
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