# Adv Quant: Statistical Significance and Machine Learning

Statistical significance on large samples sizes can be affected by small differences and can show up as significant, while in smaller samples large differences may be deemed statistically insignificant (Field, 2014).  Statistically significant results allow the researcher to reject a null hypothesis but do not test the importance of the observations made (Huck, 2011). Statistical analysis is highly deductive (Creswell, 2014), and supervised learning is highly inductive (Connolly & Begg, 2014).  Also, statistical analysis tries to identify trends in a given sample size by assuming normality, linearity or constant variance; whereas in machine learning it aims to find a pattern in a large sample of data and it is expected that these statistical analysis assumptions are not met and therefore require a higher random sampling set (Ahlemeyer-Stubbe, & Coleman, 2014).

Machine learning tries to emulate the way humans learn. When humans learn, they create a model based off of observations to help describe key features of a situation and help them predict an outcome, and thus machine learning does predictive modeling of large data sets in a similar fashion (Connolly & Begg, 2014).  The biggest selling point of supervised machine learning is that the machine can build models that identify key patterns in the data when humans can no longer compute the volume, velocity, and variety of the data (Ahlemeyer-Stubbe, & Coleman, 2014). There are many applications that use machine learning: marketing, investments, fraud detection, manufacturing, telecommunication, etc. (Fayyad, Piatetsky-Shapiro, & Smyth, 1996). Figure 1 illustrates how supervised learning can classify data or predict their values through a two-phase process.  The two-phase process consists of (1) training where the model is built by ingesting huge amounts of historical data; and (2) testing where the new model is tested on new current data that helps establish its accuracy, reliability, and validity (Ahlemeyer-Stubbe & Coleman, 2014; Connolly & Begg, 2014). The model that is created by machines through this learning is quickly adaptable to new data (Minelli, Chambers, & Dhiraj, 2013).  These models themselves are a set of rules or formulas, and that depends on which analytical algorithm is used (Ahlemeyer-Stubbe & Coleman, 2014).  Given that the supervised machine learning is trained with known responses (or outputs) to make its future predictions, it is vital to have a clear purpose defined before running the algorithm.  The model is only as good as the data that goes in it.

Figure 1:  Simplified process diagram on supervised machine learning.

Thus, for classification the machine is learning a function to map data into one or many different defining characteristics, and it could consist of decision trees and neural network induction techniques (Connolly & Begg, 2014; Fayyad et al., 1996).  Fayyad et al. (1996) mentioned that it is impossible to classify data cleanly into one camp versus another. For value prediction, regression is used to map a function to the data that when followed gives an estimate on where the next value would be (Connolly & Begg, 2014; Fayyad et al. 1996).  However, in these regression formulas, it is good to remember that correlation between the data/variables does not imply causation.

Random sampling is core to statistics and the concept of statistical inference (Smith, 2015; Field, 2011), but it also serves a purpose in supervised learning (Ahlemeyer-Stubbe & Coleman, 2014).  Random sampling of data, is selecting a proportion of the data from a population, where each data point has an equal opportunity of being selected (Smith, 2015; Huck, 2013). The larger the sample, on average tends to represent the population fairly well (Field, 2014; Huck, 2013). Given nature big data, high volume, velocity, and variety, it is assumed that there is plenty of data to draw upon and run a supervised machine learning algorithm.  However, too much data that is fed into the machine learning algorithm can increase the process and analysis time.  Also, the bigger the random sampling size used for the learning, the more time it would take to process and analyze the data.

There are also unsupervised learning algorithms, where it also needs training and testing, but unlike supervised learning, it doesn’t need to validate its model on some predetermined output value (Ahlemeyer-Stubbe & Coleman, 2014, Conolly & Begg, 2014).   Therefore, unsupervised learning tries to find the natural relationships in the input data (Ahlemeyer-Stubbe & Coleman, 2014).  Cluster analysis is an example of unsupervised learning, where the model seeks to find a finite set of the cluster that can help describe the data into subsets of similarities (Ahlemeyer-Stubbe & Coleman, 2014, Fayyad et al., 1996). Finally, in supervised learning the results could be checked through estimation error; however it is not so easy with unsupervised learning because of a lack of a target but requires retesting to see if the patterns are similar or repeatable (Ahlemeyer-Stubbe & Coleman, 2014).

References

• Ahlemeyer-Stubbe, A., & Coleman, S. (2014). A Practical Guide to Data Mining for Business and Industry, 1st Edition. [VitalSource Bookshelf Online].
• Connolly, T., Begg, C. (2014). Database Systems: A Practical Approach to Design, Implementation, and Management, 6th Edition. [VitalSource Bookshelf Online].
• Creswell, J. W. (2014) Research design: Qualitative, quantitative and mixed method approaches (4th ed.). California, SAGE Publications, Inc. VitalBook file.
• Fayyad, U., Piatetsky-Shapiro, G., & Smyth, P. (1996). From data mining to knowledge discovery in databases. Advances in Knowledge Discovery and Data Mining, 17(3), 37–54.
• Field, A. (2011) Discovering Statistics Using IBM SPSS Statistics (4th ed.). UK: Sage Publications Ltd. VitalBook file.
• Huck, S. W. (2013) Reading Statistics and Research (6th ed.). Pearson Learning Solutions. VitalBook file.
• Minelli, M., Chambers, M., Dhiraj, A. (2013). Big Data, Big Analytics: Emerging Business Intelligence and Analytic Trends for Today’s Businesses, 1st Edition. [VitalSource Bookshelf Online].

## 2 thoughts on “Adv Quant: Statistical Significance and Machine Learning”

1. Bobby Kirk says:

Great article! Thanks for sharing on LinkedIn.

Question for you. Where do you generally find your sources at? Do you use Google Scholar or have you found a better way to get your hands on research?

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1. mkhernandez says:

Bobby,

Yes, most of my sources are from Google Scholar but I have used ProQuest and IEEE databases too. Finally, I also use some textbooks.

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