• Lift is a measure of the effectiveness of a predictive model calculated as the ratio between the results obtained with and without the predictive model.
• Cumulative gains and lift charts are visual aids for measuring model performance
• Both charts consist of a lift curve and a baseline
• The greater the area between the lift curve and the baseline, the better the model

Example Problem 1

A company wants to do a mail marketing campaign. It costs the company $1 for each item mailed. They have information on 100,000 customers. Create a cumulative gains and a lift chart from the following data.

• Overall Response Rate: If we assume we have no model other than the prediction of the overall response rate, then we can predict the number of positive responses as a fraction of the total customers contacted. Suppose the response rate is 20%. If all 100,000 customers are contacted we will receive around 20,000 positive responses.

Cost ($)	Total Customers Contacted	Positive Responses
100000	100000	20000

• Prediction of Response Model: A response model predicts who will respond to a marketing campaign. If we have a response model, we can make more detailed predictions. For example, we use the response model to assign a score to all 100,000 customers and predict the results of contacting only the top 10,000 customers, the top 20,000 customers, etc.

Cost ($)	Total Customers Contacted	Positive Responses
10000	10000	6000
20000	20000	10000
30000	30000	13000
40000	40000	15800
50000	50000	17000
60000	60000	18000
70000	70000	18800
80000	80000	19400
90000	90000	19800
100000	100000	20000

Cumulative Gains Chart:

• The y-axis shows the percentage of positive responses. This is a percentage of the total possible positive responses (20,000 as the overall response rate shows).
• The x-axis shows the percentage of customers contacted, which is a fraction of the 100,000 total customers.
• Baseline (overall response rate): If we contact X% of customers then we will receive X% of the total positive responses.
• Lift Curve: Using the predictions of the response model, calculate the percentage of positive responses for the percent of customers contacted and map these points to create the lift curve.

Lift Chart:

• Shows the actual lift.
• To plot the chart: Calculate the points on the lift curve by determining the ratio between the result predicted by our model and the result using no model.
• Example: For contacting 10% of customers, using no model we should get 10% of responders and using the given model we should get 30% of responders. The y-value of the lift curve at 10% is 30 / 10 = 3.

Analyzing the Charts: Cumulative gains and lift charts are a graphical representation of the advantage of using a predictive model to choose which customers to contact. The lift chart shows how much more likely we are to receive respondents than if we contact a random sample of customers. For example, by contacting only 10% of customers based on the predictive model we will reach 3 times as many respondents as if we use no model.

Evaluating a Predictive Model

We can assess the value of a predictive model by using the model to score a set of customers and then contacting them in this order. The actual response rates are recorded for each cutoff point, such as the first 10% contacted, the first 20% contacted, etc. We create cumulative gains and lift charts using the actual response rates to see how much the predictive model would have helped in this situation. The information can be used to determine whether we should use this model or one similar to it in the future.

Example Problem 2

Using the response model P(x)=100-AGE(x) for customer xand the data table shown below, construct the cumulative gains and lift charts. Ties in ranking should be arbitrarily broken by assigning a higher rank to who appears first in the table.

Customer Name	Height	Age	Actual Response
Alan	70	39	N
Bob	72	21	Y
Jessica	65	25	Y
Elizabeth	62	30	Y
Hilary	67	19	Y
Fred	69	48	N
Alex	65	12	Y
Margot	63	51	N
Sean	71	65	Y
Chris	73	42	N
Philip	75	20	Y
Catherine	70	23	N
Amy	69	13	N
Erin	68	35	Y
Trent	72	55	N
Preston	68	25	N
John	64	76	N
Nancy	64	24	Y
Kim	72	31	N
Laura	62	29	Y

1.  Calculate P(x) for each person x

2.  Order the people according to rank P(x)

3. Calculate the percentage of total responses for each cutoff point

• Response Rate = Number of Responses  / Total Number of Responses (10)

4. Create the cumulative gains chart:

• The lift curve and the baseline have the same values for 10%-20% and 90%-100%.

5. Create the lift chart: