Discriminant Analysis

Discriminant analysis is useful for situations where you want to build a predictive model of group membership based on observed characteristics of each case. The procedure generates a discriminant function (or, for more than two groups, a set of discriminant functions) based on linear combinations of the predictor variables that provide the best discrimination between the groups. The functions are generated from a sample of cases for which group membership is known; the functions can then be applied to new cases with measurements for the predictor variables but unknown group membership. Note: The grouping variable can have more than two values. The codes for the grouping variable must be integers, however, and you need to specify their minimum and maximum values. Cases with values outside of these bounds are excluded from the analysis. Example. On average, people in temperate zone countries consume more calories per day than those in the tropics, and a greater proportion of the people in the temperate zones are city dwellers. A researcher wants to combine this information in a function to determine how well an individual can discriminate between the two groups of countries. The researcher thinks that population size and economic information may also be important. Discriminant analysis allows you to estimate coefficients of the linear discriminant function, which looks like the right side of a multiple linear regression equation. That is, using coefficients a, b, c, and d, the function is:
D = a * climate + b * urban + c * population + d * gross domestic product per Discriminant analysis is used to model the value of a dependent categorical variable based on its relationship to one or more predictors.

PROBLEM
If you are a loan officer at a bank, you want to be able to identify characteristics that are indicative of people who are likely to default on loans, and you want to use those characteristics to identify good and bad credit risks. Suppose information on 850 past and prospective customers is contained in bankloan.sav . The first 700 cases are customers who were previously given loans. Use a random sample of these 700 customers to create a discriminant analysis model, setting the remaining customers aside to validate the analysis. Then use the model to classify the 150 prospective customers as good or bad credit risks.

Spss analysis out put

ITERPRETATION
Wilks' lambda is another measure of a variable's potential. Smaller values indicate the variable is better at discriminating between groups

INTERPRETATION
The standardized coefficients allow you to compare variables measured on different scales. Coefficients with large absolute values correspond to variables with greater discriminating ability.

ITERPRETATION
The eigenvalues table provides information about the relative efficacy of each discriminant function.

OUTPUT TABLE

INTERPRETATION
Wilks' lambda is a measure of how well each function separates cases into groups. It is equal to the proportion of the total variance in the discriminant scores not explained by differences among the groups. Smaller values of Wilks' lambda indicate greater discriminatory ability of the function. The associated chi-square statistic tests the hypothesis that the means of the functions listed are equal across groups. The small significance value indicates that the discriminant function does better than chance at separating the groups.