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What is CHAID (Chi-Square-based Automatic Interaction Detection)?

Chi-Square based Automatic Interaction Detection (CHAID) is a tree-based algorithm that identifies the most important drivers of a given variable, creates segments and provides a visual representation.

A common use is to identify the differences between two groups of people, say customers and non-customers. A CHAID analysis will scan the available data and identify the one variable that best discriminates between customers and non-customers. It will then split the dataset along that variable and then look for the next best variable and so on. The end result is a series of segments that are high in customer or non-customer sample and a road map of how they were obtained.

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