Determine which of the following statements is/are true.

• The number of clusters must be pre-specified for both K-means and hierarchical clustering.
• The K-means clustering algorithm is less sensitive to the presence of outliers than the hierarchical clustering algorithm.
• The K-means clustering algorithm requires random assignments while the hierarchical clustering algorithm does not.

• I only
• II only
• III only
• I, II and II
• The correct answer is not given by (A), (B), (C), or (D)

Copyright 2023. The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.

Key: C

I is false because the number of clusters is pre-specified in the K-means algorithm but not for the hierarchical algorithm.

II is also false because both algorithms force each observation to a cluster so that both may be heavily distorted by the presence of outliers.

III is true.

Copyright 2023. The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.