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CHAPTER-17
DISCRIMINANT ANALYSIS

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What is Discriminant Analysis?

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Discriminant

analysis

is

used

to

predict

group

membership.
This technique is used to classify individuals/objects into
one of the alternative groups on the basis of a set of
predictor variables.
The dependent variable in discriminant analysis is
categorical whereas the independent or predictor
variables are either interval or ratio scale in nature.
When there are two groups (categories) of dependent
variable, we have two-group discriminant analysis and
when there are more than two groups, it is a case of
multiple discriminant analysis.

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Objectives of Discriminant Analysis

The objectives of discriminant analysis are the following:

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To find a linear combination of variables that discriminate between

categories of dependent variable in the best possible manner.

To find out which independent variables are relatively better in

discriminating between groups.

To determine the statistical significance of the discriminant function and

whether any statistical difference exists among groups in terms of

predictor variables.
To develop the procedure for assigning new objects, firms or individuals

whose profile but not the group identity are known to one of the two
groups.
To evaluate the accuracy of classification, i.e., the percentage of

customers that it is able to classify correctly.

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Uses of Discriminant Analysis

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Some of the uses of Discriminant Analysis are:

Scale construction: Discriminant analysis is

used to identify the variables/statements that are

discriminating and on which people with diverse
views will respond differently.
Perceptual mapping: The technique is also used

extensively to create attribute-based spatial maps

of the respondents mental positioning of brands.

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Uses of Discriminant Analysis

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Segment discrimination: To understand what are the

key variables on which two or more groups differ from

each other, this technique is extremely useful. Questions
to which one may seek answers are as follows:
What are the demographic variables on which potentially successful

salesmen and potentially unsuccessful salesmen differ?

What are the variables on which users/non-users of a product can be

differentiated?
What are the economic and psychographic variables on which price-

sensitive and non-price sensitive customers be differentiated?

What are the variables on which the buyers of local/national brand of

a product be differentiated?

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CONCEPTS AND

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Discriminant analysis model

The mathematical form of the discriminant

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analysis model is:

Where,
Y =
bs =
Xs =

Dependent variable
Coefficients of independent variables
Predictor or independent variables

Dependent Variable Y should be a categorized variable whereas

the independent variables Xs should be continuous. (interval or
ratio scale)
Dependent variable should be coded as 0, 1 or 1, 2 in case of
two-group discriminant model.

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Discriminant analysis model

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The method of estimating bs is based on the principle that the

ratio of between group sum of squares to within group sum of

squares be maximized. This will make the groups differ as
much as possible on the values of the discriminant function.
After having estimated the model, the b s coefficients (also

called discriminant coefficient) are used to calculate Y, the

discriminant score by substituting the values of X s in the
estimated discriminant model.
The discriminant function with a constant term is called un-

standardized whereas without the constant term is known as

standardized discriminant function

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CONCEPTS AND

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Definitions of Key Terms used in

Discriminant Analysis

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Eigenvalue - The basic principle in the estimation of a

discriminant function is that the variance between the groups

relative to the variance within the group should be maximized.
The ratio of between group variance to within group variance is
called Eigenvalue.
Canonical Correlation - Canonical correlation is the simple

correlation coefficient between the discriminant score and the

group membership. (0, 1 or 1,2 etc.)
Wilks Lambda It is given by ratio of within group sum of

squares to total sum of squares. The Wilks lambda takes a

value between 0 and 1 and lower the value of Wilks lambda, the
higher is the significance of the discriminant function. A
statistically significant function will enhance the reliability that the
differentiation between the groups exists.

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CONCEPTS AND

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Definitions of Key Terms used in

Discriminant Analysis

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Cut-off Score for Classification -

The cut-off score

used for classification is the average of two group
centroid when the size of the sample in the two groups
are same.
In case the size of sample in the two groups is not
Y
equal, the cut-off score for classification is computed as
given below:

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CONCEPTS AND

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Definitions of Key Terms used in

Discriminant Analysis
Centroids The value of un-standardized canonical
discriminant function evaluated at the group means is called group
centroids.

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Group

Standardized discriminant coefficient - The absolute values of the

coefficients in standardized discriminant function indicate the relative

contribution of the variables in discriminating between the two groups.
Structural

coefficients - Another way of finding the relative

contributions of the predictor variables in discriminating between groups
is through comparing the structural coefficients of the predictor
variables. The structural coefficients are obtained by computing the
correlation between the discriminant score and each of the independent
variables.

RELATIVE IMPORTANCE OF THE VARIABLES OBTAINED BY TWO

METHODS MAY DIFFER IF THERE IS A HIGH DEGREE OF
CORRELATION AMONG THE PREDICTOR VARIABLES.

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CONCEPTS AND

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Assessing Classification Accuracy

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Hit ratio
Maximum vs proportional chance criterion
Cross-validation
Out-of-sample Performance

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CONCEPTS AND

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END OF CHAPTER

RESEARCH
CONCEPTS AND

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