Skip to content
Financial Machine Learning / Nonparametric and Tree-Based Methods

Decision Trees: Splitting Criteria and Pruning

kkNN predicts from raw distance with no interpretable structure at all. A decision tree takes the opposite non-parametric strategy: it partitions feature space with a sequence of simple, human-readable if/then rules — "if years in the league <4.5<4.5, predict a low salary; otherwise, split further on hits" — producing a model a domain expert can read and sanity-check directly, at the cost of the high variance this note's final section confronts head-on.

In this lesson

  1. Learning objectives
  2. Growing a regression tree
  3. Classification trees: why not just use error rate?
  4. Pruning: growing large, then cutting back
  5. Worked example

Before you start

The full lesson, with worked examples and exercise solutions, is for members.

Read the full lesson

New to SelfMadeQuant.com? See membership options or browse the Financial Machine Learning syllabus.