Artificial Intelligence

A Practical Introduction to AI Decision Trees

by
Jon Reilly
,
January 3, 2023

Decision trees are a popular technique used in data science and machine learning. They're easy to understand, and can be used in many different applications for analyzing data based on probabilities to make better business decisions. They're also highly versatile - they can be used for everything from marketing to medical diagnoses.

In this article, we'll explore what AI decision trees are, how they work, and how you can implement them.

How an AI decision tree works

A decision tree is a graphical representation of possible solutions to a decision based on certain conditions. There are several types of decision trees, used for both regression and classification problems.

Supervised learning decision trees are trained using a training set, where the dependent variable (also called the class label) is known. The aim is to learn the relationship between the predictors and the target variable in the training data, so that the tree can be used to predict the class label for new, unseen data.

CART (classification and regression trees), for instance, are commonly used machine learning algorithms. Random forest is a kind of decision tree algorithm, which creates an ensemble of decision trees – each tree a sub-tree of the larger forest.

Attribute selection measures are used to identify the relative importance of the predictors when building the tree. Decision rules are made based on the highest information gain (or the gain ratio, in some cases).

The leaves of a decision tree represent the final outcomes of the decisions made. These outcomes can be either good or bad, depending on the goal of the tree. For example, if the goal of the tree is to make a profit, then a leaf node representing a profit would be considered good, while a leaf node representing a loss would be considered bad.

The accuracy of a decision tree can be measured by its ability to correctly predict the outcomes of new data. This accuracy is typically quantified using some sort of error metric, such as the mean squared error or the classification error rate.

Decision trees can be created using various algorithms, such as the ID3 algorithm or the C4.5 algorithm. These algorithms decide how the tree should be split at each node. 

The Gini index, for instance, calculates the likelihood of a specific feature being classified incorrectly when selected randomly. The idea is to minimize the Gini impurity so as to create a tree that is as pure as possible.

The ID3 and C4.5 algorithms use information gain instead, which is a measure of how much "information" is gained by considering a particular feature. The goal is still to produce a tree that is as pure as possible, with the main difference being the mathematical calculations under the hood.

What are the benefits of using an AI decision tree? 

In the AI world, "explainability" is becoming more and more important to reduce bias and improve transparency. That's why decision trees are a valuable tool for organizations looking to adopt AI and machine learning.

Some benefits of decision trees include:

  • Transparency
  • Predictiveness
  • Resistance to overfitting

The first point, transparency, is particularly important for businesses that want to explain their AI decisions to stakeholders. Consider, for instance, a credit scoring system that relies on a decision tree to predict which applicants are likely to default on their loans. The tree can be used to show how the scoring system works, and why certain applicants were deemed high-risk.

Even for someone without any experience in data science or programming, decision trees are easy to understand and visualize. 

In addition to transparency, decision trees also have strong predictive capabilities. They can handle both linear and nonlinear relationships, and they're resistant to overfitting (a common problem with machine learning models).

This is because they have fewer parameters than other types of models (such as neural networks). That also means they can be trained on smaller data sets, which is often an important consideration for businesses with limited resources.

6 Real-world applications of decision trees in AI

To better understand how decision trees can be used in artificial intelligence, let's take a look at six different ways they can be applied in the real world.

Marketing campaigns

Marketers need to be able to segment their audiences, target the right customers, and allocate resources in a way that will maximize ROI. In an increasingly saturated and competitive marketplace, this has become more difficult than ever.

One tool that can help marketers navigate these waters is the decision tree. Decision trees are a type of predictive model that can be used to identify which customer segments are most likely to convert, what channels are most effective for acquiring them, and how much to spend on each.

For instance, consider a historical dataset of leads with datapoints such as the channel, lead location, and industry vertical. A decision tree can be used to identify which leads are most likely to convert into customers, and from there, a marketer can focus their efforts on targeting those segments.

The beauty of decision trees is that they can be applied to any marketing campaign, whether it be customer acquisition, cross-selling, or even lead generation.

Let's walk through a simple example, from root to leaves, of how a decision tree can be used to segment a customer base. The root node asks "What is the customer's likelihood of conversion?" and the possible outcomes are "High," "Medium," and "Low."

The first branch, or left node, asks "What is the customer's cost of acquisition?" and the possible outcomes are "High" and "Low." If the answer is "High," then the next question would be "What is the customer's lifetime value?" If the answer to that question is also "High," then we can conclude that this lead is worth pursuing.

On the other hand, if the original question was "What is the customer's cost of acquisition?" and the answer was "Low," then we would ask "What is the customer's conversion rate?" If that answer is "High," then we can conclude that this lead is also worth pursuing. 

This is just a simple example, but it shows how decision trees can be used to segment a customer base and focus marketing efforts. By using historical data, marketers can develop models that accurately predict customer behavior, and then use that information to craft targeted campaigns.

Financial decision-making

Today's financial offices are tasked with an ever-increasing number of responsibilities: from preparing detailed reports to analyzing data and forecasting future trends. To meet these demands, many organizations are turning to decision trees.

Let's look at a few specific examples.

Loan approval

At the end of a loan approval decision tree is a simple "yes" or "no" output. But many datapoints can feed into that final decision, including the applicant's credit score, employment history, current financial situation, and more.

For instance, it may be that even if an applicant has a poor credit score, they could still be approved for a loan if they have a strong employment history and impressive current finances.

Debt collection

A decision tree can help finance teams prioritize which debts to collect first. This is especially helpful when resources are limited and not all debts can be pursued at once.

For example, a tree could take into account the amount of the debt, the length of time it has been outstanding, the likelihood of success in collecting the debt, and more. From there, the team can choose to focus its efforts on the debt that is most likely to be collected.

Investment analysis

Similarly, decision trees can be used to analyze potential investments. By inputting different variables - such as the expected return on investment, the amount of risk involved, the timeline for the investment, and so on - finance teams can make more informed decisions about which opportunities to pursue.

Once again, decision trees provide a clear and concise way to weigh all of the relevant factors and come to a sound conclusion.

In today's fast-paced and ever-changing business world, decision trees are a valuable tool for finance teams. By taking into account multiple variables and outputs, they can help organizations make more informed and efficient decisions.

Medical diagnosis

A lot of modern medicine is very experimental. A new drug might help some patients but not others, or have dangerous side effects that weren't anticipated. In these cases, it's important to have a way to quickly and accurately diagnose patients so that they can be treated appropriately.

Using machine learning can magnify these risks, so it's no sort of surefire solution. But when used correctly, decision trees can be a powerful tool for medical diagnosis.

Here's how it works: a decision tree is fed with data about a patient - their symptoms, pre-existing conditions, test results, and so on. From there, the tree outputs a list of potential diagnoses, ranked in order from most to least likely.

Used in combination with an expert's medical knowledge, this can be a powerful tool for narrowing down the potential causes of a patient's symptoms. In some cases, it might even be able to identify a previously unknown condition.

Market research

In any business, market research is essential to understand what customers want and need. It can be used to assess customer satisfaction, test new products or services, and gauge public opinion on various issues.

There are many different approaches to market research, and each has its own advantages and disadvantages. For example, surveys are a popular option because they're relatively cheap and easy to administer. However, they can be biased if not done correctly, and they often have low response rates.

Focus groups are another option, but they can be expensive and time-consuming. Additionally, the results may not be representative of the larger population.

Decision trees can be a helpful tool in market research. By inputting different variables - such as the type of research, the size of the target population, the resources available, and so on - businesses can more easily compare and contrast the different options. This can help them choose the approach that is best suited to their needs.

While no single tool is perfect, decision trees can be a valuable addition to the market researcher's toolkit. By taking into account multiple factors, they can help businesses make more informed and efficient decisions about how to conduct market research.

How can you apply decision tree AI to your business?

In the early days of AI, businesses would need to hire teams of data scientists and engineers to develop and implement complex AI models. This would be done with a combination of tools like Python, R and Spark. But now, there are online tools available that allow businesses to create AI models without needing any coding skills or knowledge of data science techniques.

One such tool is Akkio, which offers a drag-and-drop interface for creating AI models. All you need to do is select the input variables and the output variable from your dataset and Akkio will automatically create the decision tree based on your input data.

In a comparison between top machine learning platforms, including Google's AutoML, Amazon's SageMaker and Microsoft's Azure ML, Akkio was found to be the most easy to use, affordable, and fast solution.

Akkio can be used for a variety of applications, such as fraud detection or lead scoring. For fraud detection, you would need to input data about previous fraudulent transactions. Akkio would then analyze this data and predict which future transactions are likely to be fraudulent.

Lead scoring is another application where Akkio can be used. This is where you input data about your leads, such as their contact information, demographics, and behavior. Akkio will then analyze this data and score each lead based on their likelihood of converting into a paying customer.

Conclusion: Get started with Akkio today

If you're looking for a quick and easy way to get started with decision tree analysis, Akkio is the perfect solution. With its drag-and-drop interface, you can create AI models without needing any coding skills or knowledge of data science techniques.

Akkio offers a free trial so you can try it out before committing to a paid plan. Whether you're a marketer or salesperson, financial analyst, or even medical researcher, Akkio can help you make better decisions with your data. Sign up for free to get started.

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