Dimensionality reduction
We are nearly done with the theoretical lesson, let me just tell you about dimensional reduction, since we are going to employ it in a minute to improve our regression model.
Dimensional reduction is a general category including a variety of techniques employed to effectively reduce the number of variables employed to estimate a regression model. Among these techniques, you should be aware of two of them, since they are of quite easy application but rather powerful:
- Stepwise regression
- Principal component regression
Stepwise regression
When facing a wide enough range of explanatory variables, like we are now with our customer data, a reasonable question that should probably pop up is: Which is the subset of variables that maximizes the model's performance? Stepwise regression tries to answer that question.
It consists of a set of incremental procedures, from which the step part of the name comes, where a different combination of variables are tried out to find out the...