Problem
Universal bank is a young bank growing rapidly in terms of overall customer acquisition. The majority of these customers are liability customers (depositors) with varying sizes of relationship with the bank. The customer base of asset customers (borrowers) is quite small, and the bank is interested in expanding this base rapidly in more loan business. In particular, it wants to explore ways of converting its liability customers to personal loan customers. A campaign that the bank ran last year for liability customers showed a healthy conversion rate of over 9% success. This has encouraged the retail marketing department to devise smarter campaigns with better target marketing. The goal is to use k-NN to predict whether a new customer will accept a loan offer. This will serve as the basis for the design of a new campaign. The file UniversalBank.csv contains data on 5000 customers. The data include customer demographic information (age, income, etc.), the customer's relationship with the bank (mortgage, securities account, etc.), and the customer response to the last personal loan campaign (Personal Loan). Among these 5000 customers, only 480 (= 9.6%) accepted the personal loan that was offered to them in the earlier campaign. Partition the data into training (60%) and validation (40%) sets.
Repartition the data, this time into training, validation, and test sets (50% : 30% : 20%). Apply the k-NN method with the k chosen above. Compare the confusion matrix of the test set with that of the training and validation sets. Comment on the differences and their reason.