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A Hitchhiker’s Guide to Mixture Density Networks
Assessing the uncertainty of predictions is elementary for business decisions. Mixture density networks help you to better understand the uncertainty you are facing in the real world.
Introduction
Uncertainty is a key element in every decision we make. In business, however, managers regularly face decisions entailing a wide variety of unforeseeable consequences. A manager might deal with the following questions:
- “How do we set the price for XYZ based on the product attributes?”
- “How many website visits will the advertisement generate?”
- “What is the expected customer-lifetime value of customer Z-A137?”
- “How much should we spend on advertising, given the market situation?”
Each of these questions implies a decision, which is ideally well informed and considers (or at least acknowledges) the underlying uncertainty. For example: Setting prices wrong leads to lower revenues, which in turn might cause the necessity of cost savings.