Module 2: Machine Learning Basics

Table of Contents
Lesson 1 Video 1: What Is Classification? ........................................................................ 2
Lesson 1 Video 2: Classification Applications .................................................................. 4
Lesson 1 Video 3: Key Classification Algorithms .............................................................. 7
Lesson 2 Video 1: What Is Regression? ...........................................................................10
Lesson 2 Video 2: Regression Applications .....................................................................12
Lesson 2 Video 3: Key Regression Algorithms..................................................................15
Lesson 3 Video 1: What Is Clustering? ............................................................................18
Lesson 3 Video 2: Clustering Applications ......................................................................21
Lesson 3 Video 3: Key Clustering Algorithms...................................................................23
Lesson 4 Video 1: Metrics for Performance Evaluation.....................................................26
Lesson 4 Video 2: Pitfalls to Avoid (Overfitting and Underfitting) .......................................28
Lesson 4 Video 3: Cross-Validation and Retraining ..........................................................31
Lesson 5 Video 1: The Data-Model-Application Process ...................................................34
Lesson 5 Video 2: Transition from ML to AI ......................................................................37
Lesson 5 Video 3: Newer AI Models ................................................................................40
Lesson 1 Video 1: What Is Classification?

Hello fellow disruptors. Today we're diving into a fundamental concept of machine
learning. Classification, this is one of the core techniques behind many of the AI systems
that you may interact with every day. Classification is a method of supervised learning,
where an AI model is trained to categorize or classify new data based on patterns learned
from historical data.

To demonstrate this, consider a simple example, email spam filtering. Every time you
receive an email, a machine learning model classifies it as either spam or not spam. The
system has been trained on vast amounts of email data, where each email has been
labeled as either spam or not spam.

Based on the characteristics of each email, like the subject line, the sender, and the
content, the model learns to categorize future emails with a high level of accuracy.
Classification can be binary, as in this spam example, where there are only two possible
outcomes, spam or not spam. But classification can also involve more than two
categories, for instance, when a medical AI system analyzes patient data, it might classify
patients into categories like low risk, medium risk, or high risk for a disease.

The concept of classification has deep roots in statistics, long before the advent of modern
AI. One of the earliest classification methods, Linear Discriminant Analysis, or LDA, was
introduced by the British statistician Ronald Fisher in the 1930s. Fisher's method sought to
find a linear combination of features that separate different classes of objects.

Today, LDA is still widely used in fields like bioinformatics and finance. Several decades
later, as early computers were developed, AI researchers began applying statistical
classification methods to problems like pattern recognition. During this time, decision
trees emerged as a useful tool for classification. A decision tree is exactly what it sounds
like, a tree like model of decisions, where each branch represents a decision rule and each
leaf represents an outcome.

A decision tree is a simple but powerful way to sort data into different categories based on
the inherent features of the data. Today, classification is everywhere, and the algorithms
behind it have become much more sophisticated. For instance, Support Vector Machines
or SVMs, use mathematical boundaries called hyperplanes to classify data points into
different categories.

SVMs have been particularly successful in tasks like image recognition and text
classification, making them a popular choice in industries like healthcare and finance. For
example, in the financial sector, SVMs can classify whether a transaction is fraudulent or
legitimate based on patterns in previous transaction data. Similarly, in healthcare, SVMs
are used to classify medical images, helping radiologists detect diseases like cancer early
on, but SVM is just one type of classifier.

Other widely used algorithms include logistic regression, which is particularly useful for
binary classification problems, and K-nearest neighbors, which classifies a new data point
based on its proximity to other data points in a data set. These classifiers are essential in
industries where quick and accurate decision making is crucial, such as product
recommendations in retail, loan approval and banking, and chatbot responses and
customer service.

While these algorithms may sound complex, their application is often straightforward,
thus, there are a number of ways in which you probably benefit from classification in your
day to day life. First is facial recognition, when your phone unlocks after scanning your
face, it's using a classification model. The system has been trained on a data set of
different facial images and can classify whether your saved facial image matches the face
in front of the camera.

Second is credit scoring, banks and financial institutions use classification algorithms to
assess whether a loan applicant is a low or high credit risk. Based on historical data like
payment history and income, the model classifies applicants, which can help banks make
informed lending decisions. Third is medical diagnostics, in healthcare, classification
algorithms assist doctors by predicting the likelihood of a patient developing a specific
disease.

By analyzing patient data such as age, medical history, and lifestyle factors, AI systems
can classify individuals into risk categories for diseases like diabetes or heart conditions,
which with timely interventions, may lead to better outcomes. What makes classification
so valuable in machine learning is its broad applicability. Whether it's distinguishing
between spam and legitimate emails, classifying images in a photo library, or predicting
credit risk, classification enables AI systems to automate decision making in a wide range
of contexts.
Lesson 1 Video 2: Classification Applications

Hello fellow disruptors. Earlier, we introduced the concept of classification in machine

learning, and discussed how it enables AI to make decisions by sorting data into
predefined categories. Now let's take this a step further by exploring real world
applications of classification that are particularly relevant to business. These examples
will show how classification isn't just theoretical, it's transforming industries and
reshaping how decisions are made.

One of the earliest and most widespread uses of classification in business is in credit
scoring and loan approvals. Financial institutions rely on classification algorithms to
determine whether a loan applicant is likely to default. By analyzing historical data such as
payment history, credit card usage and income, AI models can classify applicants as low
risk or high risk.

This enables banks to make informed decisions, minimize defaults and allocate credit
more effectively. A widely known example is FICO scoring, which uses classification
models to assess creditworthiness. More recently, fintech companies like Lending Club
and Upstart have developed AI driven systems that classify borrowers based on additional
data points such as education level and employment history, enabling more nuanced
lending decisions.

Another critical application of classification is fraud detection in finance, banks and

payment processors use classification models to identify fraudulent transactions in real
time. These models analyze transaction data such as the location, time and purchase
pattern, and classify each transaction as either fraudulent or legitimate. A classic example
is Visa's AI-powered fraud detection system, which uses a combination of classification
techniques to monitor billions of transactions each year.

Visa's system reportedly prevents $25 billion in fraud annually by analyzing transaction
patterns and classifying potentially fraudulent behavior within milliseconds. In the world of
marketing, classification plays a key role in customer segmentation and targeted
advertising. Businesses use classification algorithms to group customers based on
behavior, preferences or demographic data.

By classifying customers into segments like high spender, brand loyalist or price sensitive,
companies can tailor their marketing strategies to each group, improving engagement and
boosting sales. For example, e-commerce platforms like Amazon use classification
models to predict which customers are most likely to purchase specific products based on
browsing and purchasing behavior.

This allows them to apply targeted offers and recommendations, significantly increasing
conversion rates. Classification is also used to analyze customer feedback through
sentiment analysis, which classifies text as positive, negative or neutral. Companies use
this technique to gauge customer satisfaction by classifying social media comments,
reviews and survey responses. This helps businesses quickly identify areas for
improvement and respond to customer needs more effectively.

A real world example is Coca Cola's use of AI for sentiment analysis on social media. By
classifying thousands of social media posts in real time, Coca Cola can quickly identify
and respond to negative sentiments about its products or campaigns, helping it maintain
brand reputation. In manufacturing, classification models are used in predictive
maintenance systems.

By analyzing data from machinery such as temperature, vibration, and operational

efficiency, AI models can classify equipment as either healthy or likely to fail. This allows
companies to perform maintenance before machines break down, minimizing downtime
and repair costs. Siemens, for example, uses AI-powered classification models in its
predictive maintenance systems, helping factories avoid costly breakdowns by predicting
machine failures well in advance.

This approach has been crucial in industries with high equipment costs, such as
automotive and aerospace manufacturing. Classification is transforming healthcare
diagnostics by helping doctors classify patients based on their risk of disease. For
instance, AI models are used to analyze medical images and classify them as either
healthy or showing signs of disease.

This has become particularly important in areas like radiology, where AI assists in
detecting diseases such as cancer. An example of this is Google Health's AI system for
detecting diabetic retinopathy. The system analyzes retinal images and classifies them as
either showing or not showing signs of the disease. Studies have shown that Google's
system can classify images with a level of accuracy comparable to expert
ophthalmologists, potentially saving sight for thousands of patients each year.

Retailers also benefit from classification through AI powered recommendation engines,

these systems classify products based on customer preferences and behavior and then
recommend to customers products that they are most likely to buy. This classification is
critical for improving the customer shopping experience and driving sales. Netflix and
Spotify use similar techniques to recommend shows, movies, and music.

By classifying content based on your viewing or listening habits, these platforms create
personalized recommendations that keep users engaged. Finally, in human resources,
classification algorithms are being used to streamline hiring and talent management
processes. AI powered recruitment tools can classify resumes and job applications based
on relevant skills and experience, helping companies filter through large pools of
candidates more efficiently.
For example, companies like IBM use AI to classify job applicants based on their
qualifications, and predict which candidates are the best fit for a particular role. This not
only speeds up the recruitment process but also reduces the risk of human bias in hiring
decisions. As this impressive list demonstrates, we interact with classification systems on
a daily basis.

As AI continues to improve, the number and efficacy of these interactions is likely to only
increase.
Lesson 1 Video 3: Key Classification Algorithms

Hello fellow disruptors. Now that we've introduced the concept of classification and
explored its real world applications, it's time to dive into the tools that power these
systems. Classification algorithms, these algorithms are the backbone of machine
learning models that help businesses predict outcomes and make better decisions. In this
video, we'll introduce some of the most widely used classification algorithms, explain how
they work at a high level, and discuss their strengths and limitations.

Despite the name, logistic regression isn't actually a regression algorithm, it's a
classification algorithm. It dates back to the early 20th century and was originally used for
studying biological data. Logistic regression is particularly useful for binary classification
tasks where there are only two possible outcomes, like yes or no, spam or not spam.

Logistic regression takes the input data, for example customer data, and fits it into a
mathematical function called the logistic function. This function produces an output
between 0 and 1, which represents the probability that the input belongs to a certain class.
If the probability is greater than 0.5, the data is classified into one category, like spam, and
if it's less than 0.5, it's classified into the other, not spam.

Historically, logistic regression was widely used in credit scoring, where it helps banks
classify loan applicants as high or low risk based on factors like income and credit history.
Logistic regression is simple and can be effective, but it struggles when there are complex
relationships between the input variables. For example, if you're trying to predict customer
behavior based on many interconnected factors, logistic regression might not capture
those nuances.

The K-Nearest Neighbors, or KNN algorithm is one of the simplest classification

algorithms. It's often described as the lazy learner because it doesn't actually learn a
model during training. Instead, when new data comes in, KNN looks at the data points
closest to it, its neighbors, and classifies the new data based on the majority class of its
neighbors.

To understand how this algorithm works, consider the following analogy. Imagine you
move into a new neighborhood and you're trying to determine the characteristics of one of
your new neighbors. To make a guess, you might examine the characteristics of five people
who live closest to this neighbor. If three of those neighbors are professionals, you might
assume your new neighbor is also a professional.

This simple idea is what powers KNN. KNN can be used for product recommendations in
retail, where the system classifies products based on the preferences of customers with
similar purchase histories. One caveat with KNN, however, is that it doesn't scale well with
large datasets because it requires computing the distance between the new data point and
every other data point in the data set.

Thus, this algorithm is best suited for small to medium sized data sets where quick
predictions are needed. Decision trees are one of the oldest and most interpretable
classification algorithms. They work like a flowchart. At each decision point or node, the
algorithm asks a question based on the features of the data, such as is the customer's age
greater than 40?

Depending on the answer, the data is sent down different branches of the tree until it
reaches a leaf which represents the final classification. Decision trees are commonly used
in healthcare to classify patients based on risk factors. For instance, they can classify
whether a patient is at low, medium or high risk for heart disease based on age, cholesterol
levels, and other factors.

Decision trees are great because they are easy to understand and explain. However, they
can be prone to overfitting, especially when the tree is too deep. Overfitting means the
model becomes too tailored to the training data and doesn't generalize well to new data.
Introduced in the 1990s, Support Vector Machines, or SVMs, are powerful classification
algorithms used for complex tasks like image recognition and text classification.

SVM works by finding the optimal boundary, called a hyperplane, that separates data
points from different classes. The idea is to maximize the distance between this
hyperplane and the nearest data points from each class, ensuring that future data points
are classified with high confidence. As a simple mental model for this algorithm, imagine
drawing a line in the sand.

SVM tries to find the line that best separates two groups of seashells, ideally with one
group isolated on each side of the line. SVM is often used in fraud detection systems where
it helps classify transactions as legitimate or fraudulent by finding patterns in transaction
histories. SVM is highly effective but can struggle with noisy data or data that isn't easily
separable by a straight line.

However, by using a technique called the kernel trick, SVM can often still perform well in
more complex scenarios by transforming the data into a multidimensional space that is
more easily analyzed by SVM. Random Forest, introduced in the early 2000s, is an
ensemble learning method that builds multiple decision trees and then combines their
predictions to make a final decision.

The idea behind random forest is that by using a group of weak learners, which are
individual decision trees, the overall prediction can be much stronger. Random forest is
widely used in predictive maintenance, where it classifies machinery as either likely to fail
or not. Based on sensor data like temperature and vibration, a random forest is
constructed by first randomly selecting a subset of features and using these features to
build a decision tree.

This process is repeated many times until a forest of trees has been constructed. When the
model is built, new data is classified by first having each tree vote on the outcome, and in
the simplest approach, the most common classification wins. Random forest is highly
effective because it reduces the risk of overfitting that often plagues individual decision
trees.

These are only some of the most popular classification algorithms. Given the importance
of this task, we should expect this topic to remain an important area for new research for
some time to come.
Lesson 2 Video 1: What Is Regression?

Hello, fellow disruptors, today we change course and introduce another fundamental
concept in machine learning regression. While classification is all about sorting data into
categories, regression helps us predict continuous outcomes. Essentially, regression
allows us to model and understand how one or more factors can influence a result, making
it extremely valuable in many business contexts.

To better understand regression, let's start with a simple analogy, imagine you run a coffee
shop and wanna predict how many drinks you'll sell tomorrow based on the temperature
outside. You've noticed that on hot days your sales of iced coffee go up, and on cooler days
they drop. Regression allows you to define a relationship between temperature and sales,
thereby helping you make predictions about the future.

At its core, regression is a technique used to predict a continuous outcome, like sales,
revenue or prices based on some input factors. Regression measures how changes in one
thing affect another. For instance, if you wanna know how changes in advertising spend
might affect your sales, regression can help you model that relationship.

The simplest type of regression is called linear regression. In this case, we generally
assume that the relationship between the inputs and outputs can be represented by a
straight line. You can think of it like you're plotting points on a graph, let's say temperature
versus sales, and trying to draw a straight line that best fits those points.

Once you have that line, you can use it to predict future sales based on expected
temperatures. The concept of regression dates back to the late 19th century when British
statistician Sir Francis Galton introduced the idea. He was studying the inheritance of traits
like height and observed that children of very tall or very short parents tended to regress
toward an average height.

This led him to coin the term regression to describe this pattern. Over time, the concept
evolved into the regression techniques we use today across various fields, including
business, economics, and healthcare. While linear regression is the most straightforward
form, there are other types of regression that address more complex problems.

Let's quickly discuss some of the more common approaches. First is simple linear
regression, this is where we predict an outcome based on just one factor. For example, you
might predict your sales based only on temperature, which is a single variable. Next, we
have multiple linear regression, sometimes there's more than one factor at play.

For instance, house prices aren't just influenced by the size of the house, but also by
factors like location, age, and nearby amenities. Multiple linear regression can predict an
outcome by looking at several input variables at once. Finally, we have polynomial
regression, what if the relationship between inputs and outputs isn't a straight line, but a
curve?

This is where polynomial regression can be used, as it allows us to capture more complex
curved relationships. But how might these regression algorithms be used in the real world?
One of the most common uses of regression in business is sales forecasting. By analyzing
past sales data along with factors like seasonality, advertising spend, and even economic
conditions, businesses can predict future sales.

Retailers often use regression models to prepare for holiday sales spikes by looking at how
past year's numbers were influenced by external factors. Next, in the world of finance,
regression models are used to predict stock prices and market trends. By looking at
historical data, things like interest rates, company performance, and broader market
indicators, investors can try to predict where stock prices are headed.

While the stock market is notoriously tricky to predict, regression often provides valuable
insights into trends. Likewise, regression is also widely used in the real estate market. Real
estate agents and buyers use it to predict the selling price of a property based on factors
like the number of bedrooms, the size of the property, the location, and even the proximity
to schools and parks.

Websites like Zillow rely heavily on regression algorithms to estimate home values, helping
buyers and sellers make more informed decisions. Furthermore, hospitals and insurance
companies use regression to predict patient costs based on factors like age, medical
history, and treatment plans. This helps them allocate resources more effectively and
estimate future healthcare expenses.

By predicting costs, healthcare providers can better manage budgets and ensure patients
get the right care at the right price. Finally, companies also use regression to predict how
effective their marketing campaigns will be. By analyzing factors like advertising spend,
customer demographics, and past campaign performance, businesses can estimate the
return on investment for future campaigns.

This allows them to allocate marketing budgets more effectively and ensure they're
reaching the right audience. Regression is powerful because it helps businesses make
data-driven decisions. Whether you're forecasting sales, predicting stock prices, or
planning a marketing campaign, regression allows you to take the data you already have
and use it to make predictions about the future.

It helps businesses optimize operations, plan for the future, and allocate resources more
effectively.
Lesson 2 Video 2: Regression Applications

Hello, fellow disruptors. In this video, we're going to take a closer look at how regression is
used in the real world and consider some examples that show how this technique powers
key business decisions and operations. These applications of regression range from sales
forecasting to financial predictions and even marketing strategies.

One of the most common applications of regression in business is sales forecasting.

Companies use historical sales data and other variables like marketing spend, economic
indicators, and seasonality to predict future sales. For example, a retail company might
analyze its past sales during a holiday season along with factors like promotions, customer
footfall, and advertising spend to estimate the likely revenue for an upcoming holiday
period.

A company like Walmart, for instance, uses regression to predict product demand and
sales based on numerous variables such as pricing, advertising, and customer trends. This
helps them optimize inventory, ensuring shelves are stocked with the right products during
peak seasons while minimizing overstock during slower periods. In the finance world,
stock price prediction is another key application of regression.

Investors and analysts use regression to forecast future market prices based on historical
data, economic indicators, and company performance metrics. Factors like interest rates,
earnings reports, and market trends can be fed into a regression model to predict how a
company might perform in the near future. For instance, companies like Goldman Sachs
use advanced regression models to analyze stock movements, helping clients make
informed decisions about buying and selling equities.

While predicting the stock market perfectly is impossible, regression helps analysts spot
trends and estimate potential price changes, aiding in investment strategies. Marketing
departments use regression to determine the return on investment of their campaigns. By
analyzing how different variables like the amount of money spent on ads, the target
audience, and the timing of the campaign, affect sales or customer engagement,
businesses can optimize their marketing spend.

This helps them understand where to invest more resources and which campaigns to scale
back. For example, a company like Coca-Cola could use regression to determine the
impact of its marketing efforts across different channels. By comparing historical
campaign spend with sales data, they can predict how much to invest in TV ads versus
digital ads to achieve the highest return.

This optimization process helps companies get the most out of their marketing budgets
while minimizing waste. Real estate pricing is another area where regression shines. Real
estate firms and home buyers alike use regression to estimate the value of properties
based on features like location, square footage, number of bedrooms, and proximity to
schools or public transport.

These factors are fed into a regression model to predict the likely selling price of a
property. Websites like Zillow rely heavily on regression models to estimate home values
for millions of properties across the United States. By analyzing historical sales data and
current market trends, Zillow's Zestimate tool offers predictions for home prices, helping
buyers and sellers make more informed decisions.

These models have become an essential part of the real estate market, especially for first
time buyers looking for guidance on pricing. In healthcare, regression is widely used to
predict patient costs. By analyzing patient data such as age, medical history and treatment
plans, hospitals and insurance companies can estimate the cost of care for different
conditions.

This helps them allocate resources more efficiently and set appropriate insurance
premiums. For example, UnitedHealth Group uses regression models to predict future
healthcare expenses for their members. By analyzing patient demographics, claims history
and medical conditions, they can forecast the cost of providing care for specific
populations. This information is crucial for budgeting and and ensuring that adequate
resources are allocated for future patient care.

Customer lifetime value, or CLV, is a metric that businesses use to estimate how much
revenue they can expect from a customer over the entire duration of their relationship.
Regression models play a critical role in predicting CLV by analyzing factors like purchase
frequency, customer demographics and engagement history. E-commerce companies like
Amazon use regression to predict CLV by looking at customer behavior over time.

By predicting how long a customer will stay engaged and how much they will likely spend,
Amazon can personalize marketing efforts and recommend products more effectively. This
helps them optimize customer retention and maximize long-term profitability. In the
financial industry, regression models are essential for risk management. Banks and
financial institutions use these models to predict the likelihood of loan defaults, stock
volatility and other financial risks.

For example, by analyzing variables such as credit scores, income levels and employment
history, regression models can predict whether a borrower is likely to default on a loan. A
bank like JP Morgan Chase might use regression techniques to assess the risk of their
lending portfolio, helping them determine which borrowers are more likely to default and
which are safer bets.

This kind of prediction helps them minimize losses while offering competitive lending
products. Finally, in the energy sector, regression is used to predict energy demand. By
analyzing historical consumption data, weather patterns and economic activity, energy
companies can predict future demand and adjust their operations accordingly. Accurate
demand forecasting helps ensure a stable supply of energy, preventing blackouts or energy
shortages.

For example, a large energy firm like Duke Energy could use regression models to predict
how much electricity will be consumed based on factors like weather forecasts and
economic activity. This helps them manage power generation and distribution efficiently,
reducing costs and minimizing the risk of outages. These examples show how regression is
a powerful tool for businesses across different industries.

Whether it's predicting sales, optimizing marketing spend, or forecasting energy demand,
regression allows businesses to make data-driven decisions that lead to better outcomes.
Lesson 2 Video 3: Key Regression Algorithms

Hello, fellow disruptors. Today, we're going to discuss some of the most important
regression algorithms. These algorithms are the engines behind the predictions we rely on,
from sales forecasts to stock price predictions. Given their importance, in this video, we
will introduce several of the most important regression algorithms, discuss how they work,
and review where they're used in the business world.

We will begin with the simplest and most well known regression algorithm, linear
regression. Linear regression has been around for over a century and remains the go to
method for many basic predictive tasks. Imagine you're plotting data points on a graph,
with temperature on one axis and sales on the other.

Linear regression helps you draw an optimal line through those points, thereby showing the
relationship between your input, temperature, and your output, sales. The goal is to use
that line to make future predictions. It's widely used because of its simplicity. However,
linear regression has its limits. It essentially assumes that the relationship between
variables is always a straight line.

And as we know, the real world can be much more complex. To demonstrate another
limitation, consider real estate pricing. If you're using just one variable, like square footage,
to predict house prices, simple linear regression might work. But if you want to include
factors like location, number of bedrooms, and age of the property, things get more
complicated.

In this case, one can employ multiple linear regression. Instead of one linear relationship,
multiple linear regression allows you to factor in several variables to make more accurate
predictions. For instance, websites like Zillow use this approach to estimate home prices
by considering a wide range of variables, not just one.

While useful, some analysis involves more complex relationships where a straight line is
insufficient. In these cases, we need a more complicated model, which is where
polynomial regression can be used. Rather than drawing a straight line, polynomial
regression draws curves that can better capture more complex relationships between
variables.

Picture a business trying to forecast sales during a product launch. Sales might rise quickly
at first, plateau for a while, and then drop off. Polynomial regression can help capture that
rise and fall pattern better than a simple linear model. While useful, adding more variables
can introduce a nefarious problem known as overfitting, where our model becomes too
finely tuned to our training data and performs poorly when faced with new data.
To tackle this, we use techniques like, ridge regression and lasso regression. These two
methods were developed to improve the robustness of models by adding regularization.
Essentially, they put a penalty on overly complex models, encouraging simpler solutions.
The difference between the two is subtle, but important. Ridge regression reduces the
influence of less important variables by shrinking the coefficients that indicate the
importance of the input variables like, temperature or previous sales.

While lasso regression can even eliminate some variables entirely by reducing their
coefficient to zero. More simply, ridge keeps everything in play, but gives less weight to less
important variables, while lasso actively simplifies the model by removing irrelevant
features. These techniques are particularly helpful in areas like, financial modeling, where
there are many factors at play, and we need to prevent overfitting to make reliable
predictions.

As an example, imagine you're trying to predict customer lifetime value based on dozens of
variables like, purchase history, browsing behavior, and demographics. Using either ridge
or lasso regression, you could fine tune your model to focus on the most important factors
leading to more accurate predictions while ignoring the noise.

Companies like Amazon use these methods to predict customer behavior and optimize
marketing efforts. Not all regression models require fitting a functional model to data.
Many algorithms that were used for classification tasks can be modified to also perform
regression. For example, we can use decision trees to perform regression not by fitting a
line to data, but by breaking the data down into smaller chunks by asking a series of
questions.

For example, if you're trying to predict house prices, the decision tree might first ask, is the
house bigger than 2,000 square feet? If the answer is yes, it might then ask, is the location
in a popular neighborhood? And so on until it arrives at a final prediction. Decision trees
are easy to understand and interpret, but they can be prone to overfitting, especially if the
tree gets too deep.

To address overfitting, we often employ random forest regression. Instead of just one
decision tree, a random forest grows hundreds of trees and averages their predictions to
get a more reliable result. You can envision this approach as similar to getting multiple
opinions from different experts, and combining their advice to make the best decision.

Random forest regression is particularly useful when dealing with large datasets and
complex variables. Companies in e-commerce and retail often use random forests to
predict customer demand or sales trends. For example, Amazon might use it to forecast
sales of specific products based on a wide range of factors like, customer demographics,
product reviews, and seasonal trends.
Finally, we have different approaches like Bayesian regression, which uses probability
distributions to estimate the relationships between variables. Unlike traditional regression
methods that produce a single estimate, Bayesian regression provides a range of possible
outcomes based on the data, inherently capturing the uncertainty in our knowledge of the
world. This is particularly useful in financial forecasting or medical fields where uncertainty
is a significant factor.

For instance, in healthcare, Bayesian regression can predict treatment outcomes while
accounting for the uncertainty and variability in patient data. As the preceding discussion
demonstrated, regression is an important machine learning technique with many different
approaches. Given the importance of predicting future trends regardless of the business,
regression will likely remain an important topic for years to come.
Lesson 3 Video 1: What Is Clustering?

Hello, fellow disruptors. Today we look at clustering, the third major machine learning
technique that groups and organizes data. If you've ever sorted things into groups, whether
it's organizing your clothes by color, arranging your books by genre, or grouping customers
by purchasing behavior, you've essentially done a form of clustering.

In machine learning, clustering refers to the process of grouping similar data points
together so that items in the same group are more alike than those in different groups. To
better understand this concept, we can use the following analogy. Imagine you've just
returned from a grocery run. You could organize your groceries in many ways.

You could sort them by type of food, fruits in one pile, vegetables in another, and grains in a
third. Or maybe you prefer to organize by when you'll eat them, grouping items into
breakfast, lunch, and dinner. The way you cluster your groceries depends on your priorities
and the relationships between the items.

In machine learning, the algorithm's goal is to figure out how to cluster data points based
on their characteristics. Just like you're clustering groceries based on food type or
mealtime. The idea is that data points in the same cluster have similar properties. In the
business world, clustering could involve grouping customers based on their shopping
habits, grouping products based on similarities, or segmenting markets.

The concept of clustering has been around for a long time, even before computers,
anthropologists and biologists were early users of clustering techniques, grouping animals
or plants based on shared traits. In fact, one of the earliest forms of clustering was used by
Carl linnaeus in the 1700s to classify living organisms based on their physical
characteristics.

While this was a manual process, it laid the groundwork for today's clustering algorithms
by highlighting the importance of grouping similar entities. Fast forward to the 1950s, when
clustering started to gain traction in computing. One of the earliest examples was used in
marketing. Businesses began to group customers based on buying patterns, creating
targeted marketing strategies for different customer segments.

Clustering made it possible to understand customers in a way that simply wasn't feasible
before computers could process large data sets. Clustering has grown significantly since
its early days, with various approaches developed over time. One of the earliest methods,
and one still widely used, is K-means clustering. K-means works by trying to divide the data
into a set number of clusters, the K and K-means by minimizing the distance between each
data point and the center of its assigned cluster.
Think of it as finding the center of each grocery group In our earlier analogy, another
significant method was hierarchical clustering, which doesn't start with a fixed number of
clusters. Instead, it builds a hierarchy of clusters by either merging smaller clusters into
larger ones or splitting large clusters into smaller ones.

This method is often visualized using something called a dendrogram, which looks like a
tree diagram showing how individual data points are grouped together. Clustering
approaches continued to evolve with the introduction of density based spatial clustering of
applications with noise. DBSCAN works well when clusters aren't nicely shaped and when
the data has a lot of noise or outliers.

It's especially useful in applications like geographic data where points aren't evenly
distributed. These methods each have their strengths and weaknesses, but the common
thread is that they aim to group similar data points together, making it easier to analyze
and draw conclusions. Clustering has endless applications in business, helping
companies make sense of vast amounts of data.

To understand the importance of clustering, consider the following application areas. First
is customer segmentation, one of the most common uses of clustering in business is to
segment customers into different groups based on behavior. For example, an online
retailer might cluster customers into groups based on their purchasing frequent shoppers,
seasonal buyers, and one time purchasers.

This helps the business tailor its marketing strategy to each group. For instance, frequent
shoppers could be offered loyalty programs, while one time purchasers might get targeted
promotions to encourage them to return. Second is product recommendations, another
powerful application of clustering is in recommender systems. Streaming platforms like
Netflix and Spotify use clustering to group similar content together by clustering movies or
songs based on user preferences.

These platforms can recommend content that users are likely to enjoy based on what
others with similar tastes have liked. Third is market segmentation, businesses use
clustering to identify different market segments. For instance, a company that sells
outdoor gear might cluster their customer base into segments based on preferred
activities like hiking, biking or camping.

Understanding these clusters allows the business to create more effective marketing
campaigns promoting the right products to the right customers at the right time. Finally, we
have risk management in finance, clustering is also used in risk management. Banks can
use clustering techniques to identify groups of customers with similar financial profiles.

By clustering customers based on income, spending habits and loan history, banks can
assess which groups are more likely to default on loans and adjust their risk strategies
accordingly. As businesses continue to amass larger and more complex data sets,
clustering will become even more essential. The future of clustering involves more
automated adaptive algorithms that can handle the ever increasing complexity of data.

For example, AI powered clustering approaches are already being developed to

dynamically update clusters as new data becomes available, making it easier for
businesses to stay on top of changing customer behaviors or market trends.
Lesson 3 Video 2: Clustering Applications

Hello fellow disruptors, in this video we will explore real world applications of clustering in
the business world. Clustering is an incredibly versatile tool used across industries to
uncover patterns, make predictions and drive strategic decisions. First, let's review
customer segmentation, one of the most common uses of clustering in business is to
group customers based on their behavior and characteristics.

Imagine you're working at an E-commerce company that has thousands of customers,

each with their own unique buying habits, preferences and interests. It's nearly impossible
to tailor marketing strategies to each individual, but clustering can help. Using a method
like K means or hierarchical clustering, you can group customers into segments based on
their purchase history, browsing behavior or demographics.

For example, customers who frequently buy high end products might belong to one
cluster, while those who only shop during sales might belong to another. Once you have
these segments, you can create targeted marketing campaigns for each group, improving
customer engagement and increasing sales. In fact, companies like Amazon and Netflix
use clustering to segment users based on viewing or purchasing history, allowing them to
personalize recommendations and promotions effectively.

Next, let's consider market basket analysis in retail, another common application of
clustering. Market basket analysis is a technique used to identify which products are often
purchased together. Clustering can be used here to group products based on customers
buying patterns, helping businesses make decisions on promotions, product placement,
or bundling offers.

For instance, if a grocery store finds that customers often buy chips and soda together,
they can create product bundles or place those items near each other to increase sales.
This kind of clustering analysis has been widely used by retailers like Walmart, who as the
story goes, used it to discover that sales of beer and diapers often spike together on
Fridays, leading to strategic product placement decisions.

Another fascinating application of clustering can be found in fraud detection. Financial

institutions like banks and credit card companies use clustering algorithms like DB Scan to
identify unusual patterns of transactions. Clustering helps identify which groups of
transactions are normal and which stand out as anomalies. These anomalies can signal
potentially fraudulent activity.

For example, if a customer usually makes small purchases in their local area but suddenly
makes several high value transactions in a foreign country, clustering algorithms can flag
these transactions as outliers for further investigation. MasterCard and Visa use clustering
techniques as part of their fraud detection systems to protect consumers and minimize
losses.

Next, many businesses deal with vast amounts of text data, whether it's customer reviews,
internal reports, or social media comments. Clustering helps to organize this unstructured
data by grouping similar documents together. For instance, companies like Google and
Facebook use clustering to organize and classify user generated content. In social media,
clustering can group posts or comments based on their themes.

For example, sentiment analysis can determine whether a customer is happy, neutral, or
upset with a product or service. This allows businesses to quickly identify trends in
customer feedback, manage their reputation, and address issues proactively. In the
healthcare industry, clustering is also widely used, especially in medical research and
diagnostics.

For example, clustering can help identify groups of patients with similar symptoms or
medical histories. Hospitals use this technique to cluster patients based on their risk
factors for certain diseases, such as diabetes or heart disease. This helps doctors provide
more personalized treatment plans. Clustering is also used in genomic research, where
scientists group genes with similar expression patterns, helping them identify the genetic
basis for diseases.

One more example that's growing in importance is supply chain optimization. Businesses
often deal with large networks of suppliers, warehouses, and distribution centers.
Clustering can be used to group suppliers or products based on cost, quality, and delivery
times. By identifying these clusters, businesses can optimize their supply chain, reducing
costs and improving efficiency.

An automaker like Tesla can use clustering to optimize its supply chain by grouping
suppliers based on performance metrics and identifying which suppliers are most reliable
for critical parts. Finally, we can look at customer churn prediction. Clustering can help
businesses predict which customers are most likely to churn or stop using their service.

By grouping customers based on usage patterns, engagement levels, and demographic

information, companies can identify at risk customers before they churn. Streaming
services like Spotify and Hulu use clustering to predict, churn and target those customers
with personalized offers or reminders to keep them engaged. As you can see, clustering is
a versatile and powerful tool that's used across industries to uncover hidden patterns in
data and drive strategic decisions.

From customer segmentation to fraud detection and supply chain optimization, clustering
allows businesses to gain deeper insights and improve their operations.
Lesson 3 Video 3: Key Clustering Algorithms

Hello, fellow disruptors. In this video, we will look at some of the most commonly used
clustering algorithms. These algorithms are what make it possible for AI systems to
organize and group data in meaningful ways, helping businesses understand their
customers, detect fraud, and optimize operations. One of the earliest and most widely
used clustering methods is called K-means clustering.

It was first introduced in middle of the last century. The idea behind K-means is simple, the
algorithm tries to divide data into a specific number of clusters or groups based on their
similarities. For example, in a business setting, you might use K-means to group customers
based on purchasing behavior.

Customers who buy similar products and have similar spending patterns would be
grouped together, allowing the company to better understand its customer segments. This
might not seem too important, but imagine how much easier it would be to manage a
handful of groups rather than potentially millions of customers. To see how K-means
functions, imagine you have a data set of customers and you want to divide them into three
groups.

The algorithm randomly selects three points, known as centroids, as the starting center of
each cluster. Then it assigns every customer to the nearest centroid based on the
similarities in their purchasing data. Once all customers are assigned, the centroids are
recalculated based on the group's average and the process repeats until the clusters no
longer change.

In the end, you have three distinct clusters of customers, each representing a different
purchasing behavior pattern. While K-means is powerful, it has limitations. The algorithm
requires you to specify the number of clusters beforehand, which isn't always intuitive. It
also assumes that clusters are spherical in shape, which may not be the case in real world
data.

Despite these challenges, K-means is widely used because of its simplicity and efficiency.
This is not the only clustering technique, another important technique is hierarchical
clustering. This method was developed around the same time as K-means and is great for
datasets where you're unsure how many clusters might be present in the data.

Unlike K-means, which requires you to specify the number of clusters in advance,
hierarchical clustering builds a tree of clusters known as a dendrogram. The process starts
by treating each data point as its own cluster, then gradually merging the closest clusters
until only one remains. You can then cut the dendrogram at any level to get the desired
number of clusters.
Hierarchical clustering is especially useful in market segmentation. For example, you
might want to group customers by demographics, purchase history, and engagement
levels. Instead of predefining the number of groups, hierarchical clustering will create a
spectrum of customer clusters, which gives businesses more flexibility in analyzing their
data. However, hierarchical clustering can be computationally expensive especially for
large data sets, so it's not always the best option when speed is a priority.

One advantage, though, is that it gives you flexibility in choosing different levels of
granularity, whether you want broad or highly detailed clusters. Another popular algorithm
is agglomerative clustering, which is a type of hierarchical clustering that works from the
bottom up. It starts by treating every data point as its own cluster, and then merges the
closest pairs of clusters step by step.

This continues until all the points are grouped into a single cluster. The advantage of this
approach is that it's more flexible in capturing complex structures and data compared to
flat clustering methods like K-means. Another key method is DBSCAN, short for Density
Based Spatial Clustering of Applications with Noise.

Unlike K-means, DBSCAN doesn't require you to specify the number of clusters, and it
works well with oddly shaped clusters. DBSCAN identifies clusters based on the density of
data points, grouping points that are closely packed together and marking those that are
far apart as outliers or noise. This makes DBSCAN particularly useful in scenarios where
data doesn't fit neatly into well-defined clusters, such as detecting fraudulent transactions
or identifying unusual behavior in network traffic.

For example, in fraud detection, DBSCAN can identify abnormal clusters of transactions
that deviate from typical patterns. Since fraud often appears as outliers in transactional
data, DBSCAN can help isolate these transactions, flagging them for further investigation.
Finally, we have Gaussian mixture models, or GMMs, a probabilistic model that assumes
that all the data points are generated from a mixture of several Gaussian distributions.

Unlike K-means, which assigns each data point to a single cluster, GMM assigns a
probability that a data point belongs to each cluster. This makes GMM more flexible when
dealing with overlapping clusters, where the boundaries between clusters aren't as clear
or there is considerable uncertainty in the data. GMM can be used in customer
segmentation, particularly in scenarios where customer behaviors or characteristics might
overlap.

For instance, a customer might belong to multiple segments based on their purchasing
behavior, product preferences, and demographics. GMM's probabilistic nature allows
businesses to identify customers who may fit into multiple categories, helping to develop
more nuanced marketing strategies. Finally, let's touch on mean-shift clustering. This
method doesn't require you to specify the number of clusters ahead of time, which makes
it useful when you're unsure how many natural clusters exist.
Mean-shift works by finding the densest areas of data points and shifting them toward the
center of the nearest cluster. It continues this process until all points converge in a dense
region, forming clusters. One key benefit of mean-shift is that it doesn't assume any
specific cluster shape, making it more flexible than K-means or even DBSCAN.

Mean-shift is often used in image segmentation, where it helps group pixels in an image
into regions based on color or texture. However, one downside is that mean-shift can be
slower than other clustering algorithms, especially for large datasets. In conclusion,
clustering is an unsupervised learning technique that groups data based on similarities,
from the simplicity of K-means to the flexibility of DBSCAN and GMM.

These algorithms help businesses make sense of complex data sets, whether it's customer
segmentation, fraud detection, or market analysis.
Lesson 4 Video 1: Metrics for Performance Evaluation

Hello, fellow disruptors. Now that we've learned about classification, regression, and
clustering algorithms, it's time to address a critical part of machine learning model
evaluation. In simple terms, we need to ask how do we know if our model is actually
working? Evaluating machine learning models is essential to ensure that they're performing
well and that the predictions they're making are reliable and accurate.

Today, we'll explore some of the key methods and metrics used to evaluate machine
learning models across classification, regression, and clustering. First, let's look at
classification models. These are models that try to categorize data into groups, like
deciding whether an email is spam or not. One of the most important metrics for evaluating
classification models is accuracy, which measures how often the model's predictions are
correct.

If your model correctly classifies 90 out of 100 emails, it has an accuracy of 90%. Sounds
straightforward, right? But accuracy isn't always enough, especially if the data is
imbalanced. For example, let's say only 5% of the emails are spam and the rest are not. If
your model just predicts that every email is not spam, it would still be 95% accurate, but
completely useless at identifying spam.

This is where other metrics come into play, like precision and recall. Precision answers the
question, out of all the emails the model labeled as spam, how many were actually spam?
While recall answers the question, out of all the actual spam emails, how many did the
model correctly identify?

The F1 score is another important metric because it combines precision and recall into a
single number, giving you a better sense of the model's overall performance. For business
applications like fraud detection, where the cost of missing fraud cases is high, recall is
often more important than accuracy. You want to catch as many fraudulent transactions
as possible, even if it means your model occasionally flags a few legitimate ones.

Next, let's review regression models. Regression is all about predicting continuous
outcomes, like forecasting sales figures or predicting housing prices. One of the most
common metrics for evaluating regression models is is mean squared error MSE, which
measures the average of the squares of the errors. Essentially, how far off the predictions
are from the actual values.

The lower the MSE, the better your model is performing. Another useful metric for
regression is R squared, or the coefficient of determination, which tells you how much of
the variability in your data is explained by your model. If your R squared value is 0.90, it
means that 90% of the variance in the outcome variable is explained by the model, which is
usually a good sign.
However, R squared isn't perfect. It doesn't tell you whether the predictions are biased or if
the model is overfitting the data. Overfitting happens when your model is too tightly fit to
the training data, performing well on the training data but poorly on new unseen data. To
combat this, we typically split our data into training and test sets and evaluate the model
on the unseen test data to ensure the model generalizes well to new data.

Finally, let's consider clustering models. Since clustering is an unsupervised learning

technique, evaluating these models can be trickier because there are generally no true
labels against which to compare the predictions. One way to assess the quality of
clustering is by using the silhouette score. This metric measures how similar each point is
to its assigned cluster compared to other clusters.

The score ranges from -1 to 1, with higher values indicating that points are well matched to
their clusters. Another metric used in clustering is the Davis-Bolden index, which
measures the average similarity ratio between each cluster and the cluster most similar to
it. Lower values indicate better clustering quality as the clusters are well separated from
each other.

It's also worth mentioning that evaluating clustering models often requires visualization.
Plotting your clusters on a 2D or 3D scatterplot can help you see how well separated they
are. While this isn't a formal metric, it's a powerful tool for understanding whether your
clusters make sense in the context of your data.

Across all machine learning models, one thing to keep in mind is the importance of cross-
validation. Instead of just splitting the data into training and test sets once, cross-
validation splits the data multiple times to ensure your model is not just performing well by
chance. A popular method is K-fold cross validation, where the data is split into k groups
and the model is trained on K -1 groups while being tested on the remaining group.

This process repeats k times with each group being used as a test set once. This gives you
a better sense of how well the model generalizes to new data. In summary, evaluating
machine learning models isn't just about accuracy. For classification models, we need to
consider metrics like precision, recall, and F1 score, especially when dealing with
imbalanced data sets.

For regression models, metrics like mean squared error and R squared give us insight into
prediction accuracy and model fit. And for clustering models, techniques like silhouette
score and Davies-Bolden index help us evaluate how well the data is grouped.
Lesson 4 Video 2: Pitfalls to Avoid (Overfitting and Underfitting)

Hello, fellow disruptors. In this video, we are going to discuss some common pitfalls that
can lead to poor performance. Specifically, we will look at two of the most notorious
challenges in machine learning, overfitting and underfitting. These issues are key to
understanding why a model might perform well in testing but fail in real world scenarios.

We will start by breaking down what each term means, how these issues come about, and
how to avoid them. First, let's talk about overfitting. This is a term you'll hear often in
machine learning, and it's been a challenge for data scientists for decades. Overfitting
happens when a model learns the details and noise in the training data so well that it
performs almost perfectly on that specific data, but then fails to generalize when exposed
to new, unseen data.

Essentially, the model becomes too tailored to the training data and picks up on quirks that
aren't relevant to making accurate predictions in the real world. A classic example of
overfitting comes from early research on decision trees in the 1980s. Researchers found
that if a decision tree was allowed to grow too complex, splitting again and again to
account for every small detail, it would perform very well on the training data but poorly on
new data.

The tree had memorized the training set instead of learning meaningful patterns in
business, overfitting could occur if an e-commerce company uses a model to predict
customer purchasing habits based on last month's sales data. If the model overfits, it
might get great results when analyzing last month's data, but will likely struggle when new
trends emerge this month.

One way to spot overfitting is by comparing the model's performance on training data
versus test data. If a model performs exceptionally well on the training set but poorly on
the test set, it's a red flag that overfitting might be happening. To avoid this pitfall with a
linear regression model, a common strategy is to use regularization techniques like lasso
or ridge regression, which add a penalty for overly complex models.

This helps simplify the model by limiting the number of variables it considers. Cross-
validation, which splits the data into multiple training and test sets, is another way to
ensure that the model generalizes well to new data by training and testing it across
different subsets of the data. Cross-validation works well with many classification and
regression models and is thus an extremely popular and powerful approach to minimizing
overfitting.

Now let's flip to the other side of the coin, underfitting. Underfitting occurs when a model is
too simple and fails to capture the underlying patterns in the data. In this case, the model
performs poorly on both the training data and new data because it hasn't learned enough
to make accurate predictions.

It's like trying to solve a complex problem with a tool that's too basic. An example of
underfitting can be seen in early applications of linear regression. Let's say you're trying to
predict housing prices based on features like square footage, the number of bedrooms,
and location. If you only use a simple linear model without considering more complex
relationships like interactions between features, your model might underfit, meaning it
doesn't pick up on critical factors that affect housing prices.

In this scenario, the model would fail to capture the nuances in the data, leading to
inaccurate predictions. One of the key reasons underfitting happens is that the model is
either too simple or isn't given enough features from which to learn patterns. In regression
models, for example, using too few variables can prevent the model from capturing all the
relevant information.

Similarly, in classification tasks, a basic model that uses too few decision boundaries
might fail to separate the classes effectively. The solution here is to increase the
complexity of the model, either by adding more features or by using a more advanced
algorithm like random forests or support vector machines, which can capture more
intricate relationships in the data.

So, given these two challenges, you might wonder how we can find the sweet spot between
overfitting and underfitting. An important concept here is the idea of the bias-variance
tradeoff. Bias refers to errors due to overly simplistic models, which might lead to
underfitting, while variance refers to errors due to models being too complex and sensitive
to the training data, which might lead to overfitting.

The goal in machine learning is to find the right balance between bias and variance,
creating a model that is complex enough to capture the true patterns in the data without
being too sensitive to noise. As machine learning and AI algorithms continue to advance,
researchers are exploring new ways to tackle overfitting and underfitting.

Automated machine learning AutoML is gaining traction as a way to automatically find the
best model architecture and hyperparameters without human intervention, reducing the
risk of overfitting or underfitting. Neural networks have also advanced with techniques like
dropout, where some neurons are randomly turned off during training to prevent overfitting
and improve generalization.

Looking ahead, we're likely to see more innovations in adaptive algorithms that can
dynamically adjust their complexity based on the data set to which they are being applied.
In summary, you can consider overfitting and underfitting to be two sides of the same coin.
Overfitting happens when your model becomes too specialized to the training data and
struggles with new data, while underfitting occurs when your model is too simple to
capture the important patterns in the data.

By understanding these pitfalls and using techniques like regularization, cross validation,
and other advanced approaches, we can find that sweet spot where our models perform
well, not just on the training data, but in the real world as well.
Lesson 4 Video 3: Cross-Validation and Retraining

Hello, fellow disruptors. Now that we've covered the basics of evaluating models and the
common pitfalls like overfitting and underfitting. Let's talk about some powerful
techniques to improve model performance, starting with cross-validation and retraining.
These methods play a crucial role in ensuring that your machine learning models
generalize well to new, unseen data.

Today, we'll dive into how these techniques work, why they matter, and how they've
evolved over time. First, we begin with cross-validation. Cross-validation is a method that
helps us evaluate how well our model will perform on data it hasn't seen before. Rather
than just splitting the data into a single training and test set, cross validation divides the
data into multiple subsets or folds.

The model is trained on some of these folds and tested on the remaining ones, this process
is repeated several times, with each fold serving as the test set once. The results are then
averaged to give a more reliable estimate of how the model performs. The most common
type of cross-validation is k fold cross-validation, where the data is split into k equal parts.

For example, in five fold cross validation, the data is divided into five sets and the model is
trained on four sets, while the fifth is used for testing. This process repeats five times with
each fold being tested once. This gives us a more robust measure of model performance
because it reduces the risk of the model being too reliant on a single split of the data.

Cross-validation was first proposed as a formal technique in the 1970s, when scientists
recognized the importance of testing models on multiple splits of data to avoid misleading
results from a single test set. Today, it's a standard practice in machine learning because it
provides a more comprehensive view of how well the model generalizes.

In business, cross-validation can be invaluable for tasks like customer segmentation,

where ensuring the model works across various subsets of the population is critical to
avoid biased outcomes. Second, we consider model retraining. Models need to be
retrained regularly, especially in dynamic environments where data is constantly changing.
Retraining ensures that models stay up to date and can adapt to new trends and patterns
in the data.

For instance, a model trained on e-commerce data from last year might not perform well
on this year's data due to changes in consumer behavior, new products, or seasonal
trends. A classic example of the need for retraining comes from Netflix's recommendation
system. When Netflix first started using machine learning to suggest movies and TV shows,
it trained its models on users historical viewing data.
But over time, the models needed to be retrained, as viewing habits changed, new genres
became popular and users preferences evolved. Without regular retraining, the
recommendation system would become outdated and less effective at offering
personalized content. One important aspect of retraining is knowing when to retrain. In
some cases, retraining should happen periodically, such as once a week or month, but in
other cases it may be triggered by concept drift when the statistical properties of the data
change over time.

In financial markets, for example, rapid shifts in the economy could require retraining a
model that predicts stock prices or risk assessments much more frequently. Another
method to improve model performance is hyperparameter tuning. Every machine learning
model has parameters like the learning rate or the number of layers in a neural network
that need to be set before training begins.

Hyperparameter tuning is the process of finding the best combination of these settings to
optimize the model's performance. Techniques like grid search or random search are often
used to explore different configurations and select the one that works best based on cross
validation results. But what about the future of cross validation and retraining?

We're already seeing advancements in these areas. Automated cross-validation tools,

which dynamically select the best cross validation strategy for a specific dataset, are
becoming more popular. These tools save time and effort by automating the process of
splitting data and running multiple model evaluations. Another exciting development is the
use of online learning algorithms.

Unlike traditional models that are trained in one batch and then deployed, online learning
models update themselves in real time as new data is processed. This allows businesses
to keep their models fresh without the need for manual retraining. This approach is
especially useful in applications like real-time bidding in online advertising, where new
data is constantly streaming into the application and models need to stay up to date to
make fast, accurate decisions.

Finally, we need to consider model selection. Once you've evaluated your models using
cross validation and optimized them with retraining and hyperparameter tuning, you still
need to decide which model to use in production. Often, the simplest model that performs
well across all metrics is the best choice. Complexity isn't always better, and simpler
models tend to be more interpretable, which is critical for business decision-making.

However, for more complex tasks like natural language processing or image recognition,
advanced models like deep neural networks may be necessary to capture the intricacies of
the data. In summary, cross-validation, retraining and hyperparameter tuning are essential
techniques for ensuring that machine learning models perform well not just on training
data but in real world applications.
Cross-validation provides a robust way to evaluate models, while retraining keeps them
relevant as new data comes in. As AI continues to evolve automated tools and online
learning will likely become even more important, helping businesses maintain high
performing models without the constant need for manual intervention.
Lesson 5 Video 1: The Data-Model-Application Process

Hello, fellow disruptors. Now that we've explored various machine learning models, their
evaluation, and the techniques to improve performance, it's time to take a step back and
look at the bigger picture. Today, we're gonna walk through the end-to-end process of
turning raw data into a working machine learning model that can be used in a practical
application.

Formally, we call this the data model application process, where data is used to create a
model that is applied to a particular business problem. This is where data becomes
actionable insights that businesses can use to make informed decisions. But like any
complex process, there are important steps and key considerations to keep in mind.

The first step in building any machine learning application is collecting and preparing the
data. As we've discussed earlier, data is the foundation of every machine learning model.
Without good data, even the most advanced algorithms won't perform well. In practice,
this often means gathering data from various sources, customer databases, transactional
data, or even external sources like government datasets or APIs.

As an example, consider the example of a retail business that wants to predict customer
churn. This company will likely pull data from their internal systems purchase history,
customer service interactions, website behavior, and perhaps even demographic data. But
raw data is rarely in a form that's ready to use.

This is where data cleaning comes in. Missing values, duplicates, and outliers need to be
handled carefully. This ensures the model isn't learning from incorrect or incomplete
information. Data preparation also includes feature engineering, the process of selecting
and transforming variables to improve model performance. For instance, a simple
customer interaction log could be turned into meaningful features like, average purchase
value or time since last purchase.

The quality of these features has a huge impact on the model's ability to make accurate
predictions. Once the data is ready, the next step is to choose the right model. There are
many machine learning models available, from simple linear regression models to more
complex neural networks. The choice of model depends on the problem you're trying to
solve and the data you have available for the model training.

For example, if the retail company is predicting whether a customer will leave, they might
use a logistic regression model for binary classification. Will they churn or not? But if
they're predicting how much a customer will spend in the next quarter, they might use a
regression model. For more complex problems, like segmenting customers into different
groups based on behavior, clustering algorithms like K means could be used.
Selecting the right model also involves considering the trade offs. Simpler models like
decision trees are often easier to interpret and explain to stakeholders, but might not
capture all the patterns in complex data. On the other hand, more advanced models like
random forests or neural networks might deliver better performance, but require more
computational power and can be harder to interpret or explain.

Once a model has been selected, the next step is to train it on the data. This is where the
model learns from the historical data to make predictions. In our retail example, the model
would analyze the features like purchase frequency, spending habits and customer service
history, and learn how these patterns are linked to customer churn or retention.

During training, the model adjusts its internal parameters to minimize error. For instance,
in a regression model, it will tweak its weights to make sure it predicts customer behavior
as accurately as possible. This process often involves optimization techniques such as,
gradient descent, which gradually improves the model's performance. Training is an
iterative process.

You'll often run into issues like overfitting, where the model performs well on the training
data but poorly on new data. This is why techniques like cross validation are so important.
Once the model is trained, it's time to evaluate its performance. We've discussed metrics
like accuracy, precision, recall, and F1 score for classification models, as well as mean
squared error for regression models.

This step is critical to ensure that the model isn't just memorizing the training data, but can
actually generalize to new, unseen data. In our retail example, the business would test the
model on a holdout dataset, perhaps a set of customers they've never seen before, and
compare the predictions to the actual outcomes.

This helps to ensure the model works well across different customer segments, not just in
the specific cases it was trained on. Now comes the exciting part, deploying the model in a
real world application. In practice, this means integrating the model into business
operations. For a retail company, this might involve using the model's predictions to guide
marketing efforts, sending targeted offers to customers who are at high risk of churning, for
example.

Model deployment isn't just about flipping a switch. It requires building the necessary
infrastructure, such as APIs, to ensure that the model can interact with other systems and
make real time predictions. And the work doesn't stop there. Monitoring the model's
performance after deployment is crucial to ensure it continues to perform as expected.

Finally, machine learning models need to be maintained and retrained regularly. As

customer behavior changes or new data becomes available, the model may start to
degrade in performance. In our retail example, a shift in shopping habits due to external
factors, such as the pandemic, could render an old model ineffective.
Regular retraining ensures that the model stays up to date and relevant. Many companies
use automated systems to track model performance and trigger retraining when
necessary. This ensures that the predictions remain accurate and that the model adapts to
changing conditions. Looking ahead, the future of the data model application process
likely involves more automation.

With AutoML, automated machine learning, many of the steps, such as, model selection,
hyperparameter tuning, and retraining can be automated. Allowing businesses to deploy
high performing models faster and with less manual effort. This is especially valuable for
companies that need to scale their AI initiatives.
Lesson 5 Video 2: Transition from ML to AI

Hello, fellow disruptors, in our journey through machine learning, we've explored how
models are built, evaluated and deployed in the real world. Now it's time to take a step
further and talk about the transition from machine learning to artificial intelligence and
what this shift means for solving complex real world problems.

Machine learning is powerful, no doubt, but AI has the potential to take it to the next level.
But like any innovation, AI also introduces new challenges. Today we'll break down this
transition, where it stands and where it might go in the future. First, let's clarify the
distinction between machine learning and artificial intelligence.

Machine learning is a subset of AI focused on using algorithms to identify patterns in data

and make predictions. AI, however, refers to a broader set of techniques designed to
simulate human intelligence, enabling machines to solve more complex tasks that go
beyond just learning from data. Machine learning models are typically built to perform
specific tasks like predicting customer churn or classifying images.

They're good at this, but they are limited by the specific patterns on which they were
trained. AI systems, on the other hand, aim to bring a higher level of autonomy and
decision making, often incorporating multiple models and handling more dynamic real
world situations. For example, consider self driving cars, traditional machine learning
might be used to train models for detecting objects on the road, such as pedestrians or
traffic signs.

But AI takes it further by integrating these machine learning models into a broader decision
making system that helps the car not only detect, but also make decisions on how to react
in real time. AI systems like these must constantly adapt, sometimes encountering
unexpected situations such as construction zones or unusual traffic patterns.

This is where AI outshines traditional machine learning by bringing in complex decision

making abilities that simulate human like intelligence. One of the biggest challenges when
transitioning from machine learning to AI is model interpretability. Machine learning
models, especially the more complex ones like deep neural networks, are often described
as black boxes because it's hard to understand how they arrive at their decisions.

As we rely on AI to make more critical decisions, whether it's approving loans, diagnosing
diseases, or driving cars, understanding why the AI made a particular decision becomes
increasingly important. In finance for instance, a bank using machine learning to approve
loans needs to explain to regulators and customers why a particular loan was denied.

Models like decision trees or logistic regression are easier to interpret because they
provide clear, traceable decision paths. But as AI systems become more sophisticated and
rely on deep learning, interpretability becomes a challenge. That's why explainable AI XAI is
becoming a field of its own. Researchers are developing methods to make AI models more
transparent without sacrificing performance.

AI might surpass traditional machine learning in performance, but a lack of transparency

can be a hurdle, especially in regulated industries. Another critical aspect of transitioning
from machine learning to AI is the balance between accuracy and generalization. Machine
learning models are often trained to be highly accurate on specific data sets.

But when you move from training data to real world applications, things can get tricky. A
machine learning model that performs well in a controlled environment might fail when it
encounters new, unforeseen situations. AI systems, particularly those using reinforcement
learning or transfer learning, are designed to generalize better across different
environments.

For example, in gaming, reinforcement learning has been used to train AI agents to play
multiple games with different rules. The famous example is AlphaGo, which learned to play
go through reinforcement learning, outsmarting even the best human players. The key here
is adaptability, AI systems are built to learn from new experiences and apply that learning
to different tasks.

In contrast, traditional machine learning models often struggle with this kind of
generalization. A recommendation system trained on user behavior for a particular season
might fail to make accurate suggestions when those behaviors shift dramatically. Like
during the COVID 19 pandemic when consumer habits changed overnight, AI systems that
incorporate real time learning can adapt more effectively to changing conditions, ensuring
their relevance in dynamic environments.

While AI promises a lot, it's important to recognize the challenges it still faces, one
significant hurdle is the issue of bias and fairness. Machine learning models often inherit
biases present in the data on which they're trained. AI being more autonomous can
potentially amplify these biases if not carefully monitored.

For example, facial recognition AI systems have been criticized for disproportionately
misidentifying people of color, leading to ethical concerns about their use in law
enforcement. This raises critical questions about how we can ensure fairness and
inclusivity as AI systems become more widespread. Another challenge AI faces is data
privacy, as AI systems become more integrated into daily life, they require massive
amounts of data to function.

This opens the door to concerns about how companies are using and storing that data. For
example, AI powered virtual assistants like Amazon's Alexa and Google Home collect voice
data to improve performance, but this has raised concerns about user privacy and
surveillance. Lastly, as AI systems become more autonomous, it's important to consider
the issue of accountability.

When an AI system makes a mistake, like a self driving car causing an accident, who is
responsible? Is it the company that built the car, the AI developer, or the car's owner?
These are questions regulators and businesses are still grappling with. And it's likely we'll
see new policies and regulations emerge as AI technologies continue to evolve.

Looking forward we can expect AI to continue breaking boundaries, especially with the rise
of multimodal AI, where models are capable of processing and generating different types
of data, text, images and even video at the same time. This could lead to smarter, more
adaptable systems across industries from healthcare to finance.

But as AI grows, it's crucial to address the challenges of interpretability, fairness and
accountability. Only then can AI truly surpass traditional machine learning and transform
the way we solve real world problems.
Lesson 5 Video 3: Newer AI Models

Hello, fellow disruptors. We've explored the fundamentals of machine learning and how it
transitions into AI. But now it's time to look ahead at some of the newer AI approaches that
are transforming how we build real world applications in business and society. AI is no
longer just a research project in labs, it's already being integrated into industries, creating
new possibilities while also raising important questions about the future.

For decades, AI in business was largely limited to rule-based systems programs that
followed a set of instructions defined by humans. These systems worked well for
structured tasks, but struggled with more complex, unpredictable environments. As
machine learning grew in popularity, it allowed businesses to move beyond static rules and
toward more dynamic systems that could learn from data.

This evolution was driven by the availability of big data, improved algorithms and more
powerful computing resources. Today, we are witnessing the rise of deep learning,
reinforcement learning and multi-modal AI approaches. These systems aren't just making
predictions, they're interacting with the world in real-time, generating new data and
adapting their behavior as they go.

As a result, let's take a look at some of these cutting edge techniques and how they're
reshaping industries. Deep learning is one of the most impactful innovations in AI, this
approach involves neural networks with many layers, hence the term deep, that can learn
highly complex patterns in large data sets.

Deep learning has already revolutionized fields like image recognition, natural language
processing and speech recognition. In business, deep learning is being used in a wide
range of applications. E-commerce companies are using deep learning models to deliver
highly personalized recommendations by analyzing a user's browsing behavior, past
purchases and even real-time actions on a website.

Amazon's recommendation engine is a prime example of how deep learning drives revenue
by understanding consumer behavior at a granular level. In healthcare, deep learning
models are helping doctors diagnose diseases from medical images such as X-rays and
MRIs. Google's DeepMind has developed systems capable of diagnosing eye diseases with
accuracy comparable to human doctors.

And these models are only getting better as they continue to learn from more data. These
kinds of real-time, high stakes applications are possible because deep learning models
can sift through huge amounts of complex data and find patterns that would be impossible
for humans to spot manually. Another exciting approach is reinforcement learning, which
enables AI systems to make decisions in dynamic environments by learning from trial and
error.
RL has been applied in gaming, robotics and even in finance. A well known example is
DeepMind's AlphaGo, which mastered the game of Go by playing millions of games against
itself. Learning strategies beyond human knowledge in business, reinforcement learning
can be applied to supply Chain management. Companies like Walmart are experimenting
with RL to optimize supply chains by dynamically adjusting inventory levels and
distribution networks based on real-time data.

This allows businesses to respond faster to market changes, reduce costs and improve
customer satisfaction. RL is also being used in automated trading systems in finance,
where AI agents learn to make profitable trades by interacting with the market in real-time.
A growing trend in AI is the development of multimodal systems.

AI that can process and generate different types of data at the same time, such as text,
images and audio. This is a significant shift because traditional AI systems were often
limited to handling one type of data at a time. One of the most prominent examples of
multi-modal AI is OpenAI's GPT-4, which can generate text, analyze images and even
answer questions about both types of data.

In practice, this means a system like GPT-4 could read a document, analyze a chart and
generate a report, essentially bridging the gap between human like understanding and raw
data processing. Multimodal AI has major implications for industries like marketing, where
companies can now use AI to analyze both customer feedback, text and visual data like
product images or ads to optimize campaigns.

In healthcare, multi-modal AI systems are being developed to integrate text-based medical

records with medical images and even genetic data, giving doctors a more holistic view of
a patient's health. While these newer approaches offer tremendous potential, they come
with challenges. One of the biggest issues is data privacy, as AI systems become more
integrated into society, they need access to vast amounts of personal data.

This raises concerns about how data is collected, stored and used. Companies need to
navigate this carefully, maintaining public trust and ensuring compliance with regulations
like the General Data Protection Regulation or GDPR in Europe. Another challenge is
ethical AI development. As AI systems become more autonomous, it's critical that they are
developed with fairness and transparency in mind.

For example, as reinforcement learning systems are used in areas like automated trading
or supply chain management. Businesses need to ensure that these systems do not
unintentionally exploit vulnerabilities or create unethical outcomes. Lastly, there's the
challenge of interpretability. As deep learning and multimodal systems grow more
complex, explaining how and why an AI model made a particular decision becomes harder.
In industries like healthcare and finance, where transparency is crucial, this is a significant
hurdle. Looking ahead, AI will continue to evolve. One promising area is the development
of self-supervised learning, where AI systems learn from unstructured data without the
need for extensive labeling. This could dramatically reduce the time and cost required to
train AI models, especially in industries with massive amounts of unstructured data like
law, media and health care.

Another exciting future direction is AI-driven creativity. We're already seeing AI systems
generate art, music, and even film scripts, opening up entirely new possibilities in the
creative industries. As AI becomes more creative, it could revolutionize sectors like
advertising, content creation and entertainment.