A Machine Learning Ensemble Approach to Churn Prediction : Developing and Comparing Local Explanation Models on Top of a Black-Box Classifier

Abstract: Churn prediction methods are widely used in Customer Relationship Management and have proven to be valuable for retaining customers. To obtain a high predictive performance, recent studies rely on increasingly complex machine learning methods, such as ensemble or hybrid models. However, the more complex a model is, the more difficult it becomes to understand how decisions are actually made. Previous studies on machine learning interpretability have used a global perspective for understanding black-box models. This study explores the use of local explanation models for explaining the individual predictions of a Random Forest ensemble model. The churn prediction was studied on the users of Tink – a finance app. This thesis aims to take local explanations one step further by making comparisons between churn indicators of different user groups. Three sets of groups were created based on differences in three user features. The importance scores of all globally found churn indicators were then computed for each group with the help of local explanation models. The results showed that the groups did not have any significant differences regarding the globally most important churn indicators. Instead, differences were found for globally less important churn indicators, concerning the type of information that users stored in the app. In addition to comparing churn indicators between user groups, the result of this study was a well-performing Random Forest ensemble model with the ability of explaining the reason behind churn predictions for individual users. The model proved to be significantly better than a number of simpler models, with an average AUC of 0.93.