Society of Actuaries (SOA) PA Practice Exam

What does Cross Validation primarily help to reduce?

1. Data collection time.

2. Overfitting.

3. Model complexity.

4. Data input errors.

The correct answer is: Overfitting.

Cross Validation is a statistical method primarily utilized to assess how the results of a statistical analysis will generalize to an independent dataset. Its main purpose is to reduce overfitting, which occurs when a model learns the noise and fluctuations in the training data to the extent that it negatively impacts the performance of the model on new data. Overfitting can lead to a model that performs exceptionally well on training data but fails to predict outcomes accurately when applied to unseen data. By using Cross Validation, the dataset is divided into multiple subsets, allowing the model to be trained on some parts of the data while being validated on others. This process helps to ensure that the model maintains robustness and effective predictive power across different datasets. While other options touch on important aspects of data analysis and model development, they do not relate to the specific benefit that Cross Validation provides in terms of model performance and overall predictive accuracy. Thus, the primary advantage of Cross Validation is its effectiveness in mitigating overfitting, enabling the development of models that are more generalizable and reliable in real-world applications.