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In this tutorial, you will learn what a categorical variable is, along with three approaches for handling this type
of data.

Introduction
A categorical variable takes only a limited number of values.

Consider a survey that asks how often you eat breakfast and provides four options: "Never", "Rarely",
"Most days", or "Every day". In this case, the data is categorical, because responses fall into a fixed set of
categories.
If people responded to a survey about which what brand of car they owned, the responses would fall into
categories like "Honda", "Toyota", and "Ford". In this case, the data is also categorical.

You will get an error if you try to plug these variables into most machine learning models in Python without
preprocessing them first. In this tutorial, we'll compare three approaches that you can use to prepare your
categorical data.

Three Approaches
1) Drop Categorical Variables
The easiest approach to dealing with categorical variables is to simply remove them from the dataset. This
approach will only work well if the columns did not contain useful information.

2) Label Encoding
Label encoding assigns each unique value to a different integer.

This approach assumes an ordering of the categories: "Never" (0) < "Rarely" (1) < "Most days" (2) < "Every
day" (3).

This assumption makes sense in this example, because there is an indisputable ranking to the categories. Not
all categorical variables have a clear ordering in the values, but we refer to those that do as ordinal
variables. For tree-based models (like decision trees and random forests), you can expect label encoding to
work well with ordinal variables.

3) One-Hot Encoding
One-hot encoding creates new columns indicating the presence (or absence) of each possible value in the
original data. To understand this, we'll work through an example.

In the original dataset, "Color" is a categorical variable with three categories: "Red", "Yellow", and "Green". The
corresponding one-hot encoding contains one column for each possible value, and one row for each row in the
original dataset. Wherever the original value was "Red", we put a 1 in the "Red" column; if the original value
was "Yellow", we put a 1 in the "Yellow" column, and so on.

In contrast to label encoding, one-hot encoding does not assume an ordering of the categories. Thus, you can
expect this approach to work particularly well if there is no clear ordering in the categorical data (e.g., "Red" is
neither more nor less than "Yellow"). We refer to categorical variables without an intrinsic ranking as nominal
variables.

One-hot encoding generally does not perform well if the categorical variable takes on a large number of values
(i.e., you generally won't use it for variables taking more than 15 different values).

Example
As in the previous tutorial, we will work with the Melbourne Housing dataset
(https://www.kaggle.com/dansbecker/melbourne-housing-snapshot/home).

We won't focus on the data loading step. Instead, you can imagine you are at a point where you already have
the training and validation data in X_train , X_valid , y_train , and y_valid .
 In [1]: import pandas as pd
from sklearn.model_selection import train_test_split

# Read the data

data = pd.read_csv('../input/melbourne-housing-snapshot/melb_data.csv')

# Separate target from predictors

y = data.Price
X = data.drop(['Price'], axis=1)

# Divide data into training and validation subsets

X_train_full, X_valid_full, y_train, y_valid = train_test_split(X, y, train
_size=0.8, test_size=0.2,
random_stat
e=0)

# Drop columns with missing values (simplest approach)

cols_with_missing = [col for col in X_train_full.columns if X_train_full[co
l].isnull().any()]
X_train_full.drop(cols_with_missing, axis=1, inplace=True)
X_valid_full.drop(cols_with_missing, axis=1, inplace=True)

# "Cardinality" means the number of unique values in a column

# Select categorical columns with relatively low cardinality (convenient bu
t arbitrary)
low_cardinality_cols = [cname for cname in X_train_full.columns if X_train_
full[cname].nunique() < 10 and
X_train_full[cname].dtype == "object"]

# Select numerical columns

numerical_cols = [cname for cname in X_train_full.columns if X_train_full[c
name].dtype in ['int64', 'float64']]

# Keep selected columns only

my_cols = low_cardinality_cols + numerical_cols
X_train = X_train_full[my_cols].copy()
X_valid = X_valid_full[my_cols].copy()

/opt/conda/lib/python3.6/site-packages/pandas/core/frame.py:4102: SettingWi
thCopyWarning:
A value is trying to be set on a copy of a slice from a DataFrame

See the caveats in the documentation: http://pandas.pydata.org/pandas-docs/

stable/user_guide/indexing.html#returning-a-view-versus-a-copy
errors=errors,

We take a peek at the training data with the head() method below.
 In [2]: X_train.head()

Out[2]:
Type Method Regionname Rooms Distance Postcode Bedroom2 Bathroom Landsize

Southern
12167 u S 1 5.0 3182.0 1.0 1.0 0.0
Metropolitan

Western
6524 h SA 2 8.0 3016.0 2.0 2.0 193.0
Metropolitan

Western
8413 h S 3 12.6 3020.0 3.0 1.0 555.0
Metropolitan

Northern
2919 u SP 3 13.0 3046.0 3.0 1.0 265.0
Metropolitan

Western
6043 h S 3 13.3 3020.0 3.0 1.0 673.0
Metropolitan

Next, we obtain a list of all of the categorical variables in the training data.

We do this by checking the data type (or dtype) of each column. The object dtype indicates a column has
text (there are other things it could theoretically be, but that's unimportant for our purposes). For this dataset,
the columns with text indicate categorical variables.

In [3]: # Get list of categorical variables

s = (X_train.dtypes == 'object')
object_cols = list(s[s].index)

print("Categorical variables:")
print(object_cols)

Categorical variables:
['Type', 'Method', 'Regionname']

Define Function to Measure Quality of Each Approach

We define a function score_dataset() to compare the three different approaches to dealing with
categorical variables. This function reports the mean absolute error
(https://en.wikipedia.org/wiki/Mean_absolute_error) (MAE) from a random forest model. In general, we want the
MAE to be as low as possible!

In [4]: from sklearn.ensemble import RandomForestRegressor

from sklearn.metrics import mean_absolute_error

# Function for comparing different approaches

def score_dataset(X_train, X_valid, y_train, y_valid):
model = RandomForestRegressor(n_estimators=100, random_state=0)
model.fit(X_train, y_train)
preds = model.predict(X_valid)
return mean_absolute_error(y_valid, preds)
Score from Approach 1 (Drop Categorical Variables)
We drop the object columns with the select_dtypes() (https://pandas.pydata.org/pandas-
docs/stable/reference/api/pandas.DataFrame.select_dtypes.html) method.

In [5]: drop_X_train = X_train.select_dtypes(exclude=['object'])

drop_X_valid = X_valid.select_dtypes(exclude=['object'])

print("MAE from Approach 1 (Drop categorical variables):")

print(score_dataset(drop_X_train, drop_X_valid, y_train, y_valid))

MAE from Approach 1 (Drop categorical variables):

175703.48185157913

Score from Approach 2 (Label Encoding)

Scikit-learn has a LabelEncoder (https://scikit-
learn.org/stable/modules/generated/sklearn.preprocessing.LabelEncoder.html) class that can be used to get
label encodings. We loop over the categorical variables and apply the label encoder separately to each
column.

In [6]: from sklearn.preprocessing import LabelEncoder

# Make copy to avoid changing original data

label_X_train = X_train.copy()
label_X_valid = X_valid.copy()

# Apply label encoder to each column with categorical data

label_encoder = LabelEncoder()
for col in object_cols:
label_X_train[col] = label_encoder.fit_transform(X_train[col])
label_X_valid[col] = label_encoder.transform(X_valid[col])

print("MAE from Approach 2 (Label Encoding):")

print(score_dataset(label_X_train, label_X_valid, y_train, y_valid))

MAE from Approach 2 (Label Encoding):

165936.40548390493
In the code cell above, for each column, we randomly assign each unique value to a different integer. This is a
common approach that is simpler than providing custom labels; however, we can expect an additional boost in
performance if we provide better-informed labels for all ordinal variables.

Score from Approach 3 (One-Hot Encoding)

We use the OneHotEncoder (https://scikit-
learn.org/stable/modules/generated/sklearn.preprocessing.OneHotEncoder.html) class from scikit-learn to get
one-hot encodings. There are a number of parameters that can be used to customize its behavior.

We set handle_unknown='ignore' to avoid errors when the validation data contains classes that aren't
represented in the training data, and
setting sparse=False ensures that the encoded columns are returned as a numpy array (instead of a
sparse matrix).

To use the encoder, we supply only the categorical columns that we want to be one-hot encoded. For instance,
to encode the training data, we supply X_train[object_cols] . ( object_cols in the code cell below is a
list of the column names with categorical data, and so X_train[object_cols] contains all of the categorical
data in the training set.)

In [7]: from sklearn.preprocessing import OneHotEncoder

# Apply one-hot encoder to each column with categorical data

OH_encoder = OneHotEncoder(handle_unknown='ignore', sparse=False)
OH_cols_train = pd.DataFrame(OH_encoder.fit_transform(X_train[object_cols
]))
OH_cols_valid = pd.DataFrame(OH_encoder.transform(X_valid[object_cols]))

# One-hot encoding removed index; put it back

OH_cols_train.index = X_train.index
OH_cols_valid.index = X_valid.index

# Remove categorical columns (will replace with one-hot encoding)

num_X_train = X_train.drop(object_cols, axis=1)
num_X_valid = X_valid.drop(object_cols, axis=1)

# Add one-hot encoded columns to numerical features

OH_X_train = pd.concat([num_X_train, OH_cols_train], axis=1)
OH_X_valid = pd.concat([num_X_valid, OH_cols_valid], axis=1)

print("MAE from Approach 3 (One-Hot Encoding):")

print(score_dataset(OH_X_train, OH_X_valid, y_train, y_valid))

MAE from Approach 3 (One-Hot Encoding):

166089.4893009678
Which approach is best?
In this case, dropping the categorical columns (Approach 1) performed worst, since it had the highest MAE
score. As for the other two approaches, since the returned MAE scores are so close in value, there doesn't
appear to be any meaningful benefit to one over the other.

In general, one-hot encoding (Approach 3) will typically perform best, and dropping the categorical columns
(Approach 1) typically performs worst, but it varies on a case-by-case basis.

Conclusion
The world is filled with categorical data. You will be a much more effective data scientist if you know how to use
this common data type!

Your Turn
Put your new skills to work in the next exercise (https://www.kaggle.com/kernels/fork/3370279)!

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