Risk Assessment and Management
Overfitting occurs when a predictive model learns not only the underlying patterns in the training data but also the noise and outliers, leading to a model that performs well on training data but poorly on unseen data. This happens because the model becomes too complex, capturing details that do not generalize well beyond the training set. In decision trees, overfitting is particularly common as they can create very deep trees with many branches that fit every detail of the training data.
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