MLS-C01 Modeling Practice Question
A data scientist is building a model to predict customer churn. The dataset contains categorical features with high cardinality (e.g., ZIP code, customer ID). Which encoding method is MOST suitable?
⚠ Common exam trap
A common mix-up: candidates choose one-hot encoding as the default for categorical data, failing to recognize that high cardinality makes it impractical, or they pick label encoding assuming it is safe for tree models, but it introduces false ordinality that can degrade performance.
Answer choices
Why each option matters
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
Target encoding
Target encoding is most suitable for high-cardinality categorical features because it replaces each category with the mean of the target variable for that category, effectively capturing the predictive signal while keeping the feature space dense. This avoids the curse of dimensionality from one-hot encoding and the arbitrary ordinality of label encoding, which can mislead tree-based models.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
One-hot encoding
Why it's wrong here
One-hot encoding creates too many features.
- ✗
Label encoding
Why it's wrong here
Label encoding implies order which may not exist.
- ✗
Hashing encoding
Why it's wrong here
Hashing may cause collisions and lose information.
- ✓
Target encoding
Why this is correct
Target encoding captures information without expanding dimensionality.
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