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Showing posts from July, 2012

Understanding And Interpreting Gain And Lift Charts

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Lift and Gain Charts are a useful way of visualizing how good a predictive model is. In SPSS, a typical gain chart appears as follows:



In today's post, we will attempt to understand the logic behind generating a gain chart and then discuss how gain and lift charts are interpreted.


To do this, we will use the example of a direct mailing company. Let us assume that based on experience, the company knows that the average response rate on its direct mail campaigns is 10%. Let us further make the following assumptions:


* Cost per ad mailed = $1
* Return per response = $50


Additionally, let us assume that the company mails out ads in lots of 10,000. Based on these assumptions, if the company mails out 100,000 ads, a table summarizing the results it would obtain from this campaign is provided below:



Now let us assume that the company uses SPSS Modeler to develop a predictive model using data from previous campaigns. "Response / No Response" is identified as the "target" fie…