Predicting future purchases with matrix factorization

Abstract: This thesis aims to establish the efficacy of using matrix factorization to predict future purchases. Matrix factorisation is a machine learning method, commonly used to implement the collaborative filtering recommendation system. It finds items that a user may be interested in by comparing items that other similar users have rated, explicitly or implicitly, highly. To fulfill the purpose of the thesis, a qualitative and comparative approach was taken. First, three different implementations of matrix factorisation were created and trained on one year of purchase histories. Two generic methods of predicting future purchases, picking a random item and picking the top selling items, were also created to serve as a point of comparison. The ability to predict future purchases was established as the proportion of correct predictions a method could make. All five methods were then tested using a separate data set and the results compared. The results clearly show that matrix factorisation models are better at predicting future purchases than the generic models. However, the difference between the matrix factorization models was comparatively small. A notable discovery was that there was a decrease in the gap between all methods ability of predicting future purchases, as more predictions are made. The method of predicting a random item fared poorly, correctly predicting cumulatively less than one tenth of any other method.