Discriminant analysis is a statistical technique used to classify observations into

predefined groups or categories based on their characteristics or predictor variables. The primary
purpose of discriminant analysis is to identify the combination of independent variables that best
discriminate between groups and to develop a classification rule that can accurately assign new
observations to their appropriate group.

**Purpose of Discriminant Analysis**:

1. **Classification**: Discriminant analysis is used to classify observations into predefined groups or

categories based on their characteristics or attributes. For example, in medical research, discriminant
analysis can be used to classify patients into different diagnostic categories (e.g., healthy, diseased)
based on their symptoms and test results.

2. **Variable Selection**: Discriminant analysis helps identify the subset of independent variables
(predictors) that are most effective in discriminating between groups. This can aid in feature
selection and model simplification by focusing on the most informative variables.

3. **Dimensionality Reduction**: Discriminant analysis can reduce the dimensionality of the data by
transforming the original variables into a smaller set of linear combinations (discriminant functions)
that capture the maximum separation between groups.

4. **Hypothesis Testing**: Discriminant analysis allows researchers to test hypotheses about group
differences by examining the significance of the discriminant functions and evaluating the overall
effectiveness of the classification model.

**Assumptions of Discriminant Analysis**:

1. **Normality**: Discriminant analysis assumes that the distributions of the independent variables
are approximately normal within each group. Violations of this assumption can affect the accuracy of
the classification results, particularly for small sample sizes.

2. **Homogeneity of Variance-Covariance Matrices**: Discriminant analysis assumes that the

variance-covariance matrices of the independent variables are equal across groups. This assumption,
known as homoscedasticity, ensures that the discriminant functions provide an accurate
representation of group differences.

3. **Linearity**: Discriminant analysis assumes that the relationships between the independent
variables and the discriminant functions are linear. Non-linear relationships may lead to biased
classification results.
4. **Independence**: Discriminant analysis assumes that the observations are independent of each
other. This assumption is essential to ensure that the classification rule generalizes well to new data.

**Example with Assumptions**:

Let's consider an example of discriminant analysis in marketing research. Suppose a company wants
to classify customers into two groups (buyers and non-buyers) based on their demographic
characteristics (age, income, education) and purchase history (frequency of purchases, total
spending). The company collects data from a sample of customers and conducts discriminant
analysis to develop a classification rule.

Assumptions:

- Normality: The company assumes that the distributions of age, income, education, frequency of
purchases, and total spending are approximately normal within each group.

- Homogeneity of Variance-Covariance Matrices: The company assumes that the variance-covariance

matrices of the demographic and purchase variables are equal across buyers and non-buyers.

- Linearity: The company assumes that the relationships between the demographic and purchase
variables and the discriminant functions are linear.

- Independence: The company ensures that each customer's data is independent of others in the
sample.

By meeting these assumptions and conducting discriminant analysis, the company can develop a
classification rule to predict whether new customers are likely to be buyers or non-buyers based on
their demographic characteristics and purchase history.

Discriminant analysis is a technique for analyzing data when the criterion or dependent variable is
categorical and the predictor or independent variables are interval in nature. For example, the
dependent variable may be the choice of the make of a new car (A, B or C) and the independent
variables may be ratings of attributes of PCs on a seven-point Likert scale.

The objectives of discriminant analysis are as follows:

1 Development of discriminant functions, or linear combinations of the predictor or independent

variables, that best discriminate between the categories of the criterion or dependent variable
(groups).

2 Examination of whether significant differences exist among the groups, in terms of the predictor
variables

. 3 Determination of which predictor variables contribute to most of the intergroup differences.

4 Classification of cases to one of the groups based on the values of the predictor variables.
 5 Evaluation of the accuracy of classification. Discriminant analysis techniques are described by the
number of categories possessed by the criterion variable. When the criterion variable has two
categories, the technique is known as two-group discriminant analysis. When three or more
categories are involved, the technique is referred to as multiple discriminant analysis. The main
distinction is that in the two group case it is possible to derive only one discriminant function, but in
multiple discriminant analysis more than one function may be computed.

Discriminant analysis (DA) is a multivariate technique which is utilized to divide two

or more groups of observations (individuals) premised on variables measured on
each experimental unit (sample) and to discover the impact of each parameter in
dividing the groups.

In addition, the prediction or allocation of newly defined observations to previously

specified groups may be examined using a linear or quadratic function for assigning
each individual to existing groups. This can be done by determining which group
each individual belongs to.

A system for determining membership in a group may be constructed using

discriminant analysis. The method comprises a discriminant function (or, for more
than two groups, a set of discriminant functions) that is premised on linear
combinations of the predictor variables that offer the best discrimination between
the groups. If there are more than two groups, the model will consist of discriminant
functions. After the functions have been constructed using a sample of instances for
which the group membership is known, they may be applied to fresh cases that
contain measurements for the predictor variables but whose group membership is
unknown.

Assumptions

 Samples ought to be free from one another and independent.

 The variables used as predictors should have a multivariate normal
distribution, and the variance-covariance matrices for each group should be
the same.
 It is presumable that cases cannot correspond to more than one group since
group membership is considered mutually exclusive (that is, no case belongs
to more than one group) (that is, all cases are members of a group).
 If group membership is based on values of a continuous variable, then
consider using linear regression to take advantage of the richer information
offered by the constant variable. The procedure is most effective when group
membership is a truly categorical variable.

Types
Linear and quadratic discriminant analysis are the two varieties of a statistical
technique known as discriminant analysis.

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#1 – Linear Discriminant Analysis

Often known as LDA, is a supervised approach that attempts to predict the class of
the Dependent Variable by utilizing the linear combination of the Independent
Variables. It is predicated on the hypothesis that the independent variables have a
normal distribution (continuous and numerical) and that each class has the same
variance and covariance. Both classification and conditionality reduction may be
accomplished with the assistance of this method.

#2 – Quadratic Discriminant Analysis

It is a subtype of Linear Discriminant Analysis (LDA) that uses quadratic combinations

of independent variables to predict the class of the dependent variable. The
assumption of the normal distribution is maintained. Even if it does not presume that
the classes have an equal covariance. The QDA produces a quadratic decision
boundary.

Application
Not only is it possible to solve classification issues using discriminant analysis. It also
makes it possible to establish the informativeness of particular classification
characteristics and assists in selecting a sensible set of geophysical parameters or
research methodologies.

Businesses use discriminant analysis as a tool to assist in gleaning meaning from data
sets. This enables enterprises to drive innovative and competitive remedies
supporting the consumer experience, customization, advertising, making predictions,
and many other common strategic purposes.

The human resources function is to evaluate potential candidates’ job performance

by using background information to predict how well candidates would perform
once employed.

Based on many performance metrics, an industrial facility can forecast when

individual machine parts may fail or require maintenance.

The ability to anticipate market trends that will have an impact on new products or
services is required for sales and marketing.