Let’s take a geek’s-eye look around the AI treasure house. Oh, here’s a cool tool - Latent Effects Modeling. Latent variables, as opposed to observable variables, are variables that are not directly observed but are rather inferred (through a mathematical model) from other variables that are observed (directly measured). In short, Latent Effects Modeling takes what you can see and directly measure and infers (predicts) the variables you can’t see or measure. Stuff like trends for example.
Imagine a box ⎯ the top, bottom, and each of four sides are datasets, all of them interacting with each other at full gallop.
Now imagine a company in the fishing industry – Learnington Inc. In this case, one dataset is about the weather, another is about Learnington’s fishing-based revenues, others are about how big ships are traveling through their fishing grounds and their effects on various fisheries – and therefore revenues, or not … toss your own variables and push the button to start the pattern matching and factoring in the variables.
Complex? Yes, but the model crunches away … and comes up with trends and predictions that reveal the unseen trends and variables and how they may play out if the data remains the same.
Latent Effect Modeling is in play as we speak, generating some of the most widely used predictive models of the COVID-19 spread, as well as looking for trends and patterns in marketing data.
People are using it for all sorts of predictive analytics modeling:
In his “disruptive” book, The Innovators Dilemma, Harvard Business School Professor Clayton Christensen talks about “Jobs to be done”. The Jobs that most companies have been asking AI to do thus far have been to either reduce costs or measure efficiency – with the by-product being increased profit.
While these less-advanced organizations focus their AI initiatives on cost reduction, more-advanced companies are seeing revenue increases from AI, indicating a shift to more strategic — and customer-centric — AI deployments. It’s time to think of AI as a way to directly increase revenue.
Two quick real-world examples of AI techniques, like Latent Effects Modeling, are making their way into the marketing and healthcare worlds.
The best way to really get your mind wrapped around Latent Effects Modeling and other AI power tools is to consult with those of us who are using them.