Determine which of the following statements about clustering is/are true.

• Cutting a dendrogram at a lower height will not decrease the number of clusters.
• K-means clustering requires plotting the data before determining the number of clusters.
• For a given number of clusters, hierarchical clustering can sometimes yield less accurate results than K-means clustering.

• None
• I and II only
• I and III only
• II and III only
• 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 true. At the lowest height, each observation is its own cluster. The number of clusters decreases as the height increases.

II is false. There is no need to plot the data to perform K-means clustering.

III is true. K-means does a fresh analysis for each value of K while for hierarchical clustering, reduction in the number of clusters is tied to clusters already made. This can miss cases where the clusters are not nested.

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