## 31.3 Encoding categorical data

For many (but not all) modeling frameworks, categorical data must be transformed somehow. The most common strategy for this is dummy coding, which stats::model.matrix() will do for you automatically using the stats::contrasts() function. There are also other coding schemes you can use with base R, such as Helmert and polynomial coding (see ?contrasts and related functions). Dummy coding leaves one group out (the first level of the factor, by default) and creates new columns for all the other groups coded $$0$$ or $$1$$ depending on whether the original variable represented that value or not. For example:

f <- factor(c("red", "red", "blue", "green", "green", "green"))
contrasts(f)
##       green red
## blue      0   0
## green     1   0
## red       0   1

In the above, "blue" has been assigned as the reference category (note that factor levels are assigned in alphabetical order by default), and dummy variables have been created for "green" and "red". In a linear regression framework, "blue" would become the intercept.

We can recreate this same coding scheme with {recipes}, but we need to first put it in a data frame.

df <- data.frame(f, score = rnorm(length(f)))
df
##       f      score
## 1   red  1.0734291
## 2   red -0.2675359
## 3  blue  0.7512238
## 4 green  0.5436071
## 5 green  0.6940371
## 6 green -0.6446104
recipe(score ~ f, data = df) %>%
step_dummy(f) %>%
prep() %>%
bake(new_data = NULL)
## # A tibble: 6 x 3
##    score f_green f_red
##    <dbl>   <dbl> <dbl>
## 1  1.07        0     1
## 2 -0.268       0     1
## 3  0.751       0     0
## 4  0.544       1     0
## 5  0.694       1     0
## 6 -0.645       1     0

In the above, we’ve created the actual columns we need, while in the base example we only created the contrast matrix (although it’s relatively straightforward to then create the columns).

The {recipes} version is, admittedly, a fair amount of additional code, but as we saw in the previous section, {recipes} is capable of making a wide range of transformation in a systematic way.

### 31.3.1 Transformations beyond dummy coding

Although less used in inferential statistics, there are a number of additional transformations we can use to encode categorical data. The most straightforward is one-hot encoding. One-hot encoding is essentially equivalent to dummy coding except we create the variables for all levels in the categorical variable (i.e., we do not leave one out as a reference group). This generally makes them less useful in linear regression frameworks (unless the model intercept is dropped), but they can be highly useful in a number of other frameworks, such as tree-based methods (covered later in the book).

To use one-hot encoding, we pass the additional one_hot argument to step_dummy().

recipe(score ~ f, data = df) %>%
step_dummy(f, one_hot = TRUE) %>%
prep() %>%
bake(new_data = NULL)
## # A tibble: 6 x 4
##    score f_blue f_green f_red
##    <dbl>  <dbl>   <dbl> <dbl>
## 1  1.07       0       0     1
## 2 -0.268      0       0     1
## 3  0.751      1       0     0
## 4  0.544      0       1     0
## 5  0.694      0       1     0
## 6 -0.645      0       1     0

Another relatively common encoding scheme, particularly within natural language processing frameworks, is integer encoding, where each level is associated with a unique integer. For example

recipe(score ~ f, data = df) %>%
step_integer(f) %>%
prep() %>%
bake(new_data = NULL)
## # A tibble: 6 x 2
##       f  score
##   <dbl>  <dbl>
## 1     3  1.07
## 2     3 -0.268
## 3     1  0.751
## 4     2  0.544
## 5     2  0.694
## 6     2 -0.645

Notice that the syntax is essentially equivalent to the previous dummy-coding example, but we’ve just swapped out step_dummy() for step_integer(). Integer encoding can be useful in natural language processing in particular because words can be encoded as integers, and then the algorithm can search for patterns in the numbers.

### 31.3.2 Handling new levels

One other very common problem with encoding categorical data is how to handle new, unseen levels. For example, let’s take a look at the recipe below:

rec <- recipe(score ~ f, data = df) %>%
step_dummy(f)

We will have no problem creating dummy variables within this recipe as long as the levels of $$f$$ are within those contained in df\$f (or, more mathematically, where $$f \in F$$). But what if, in a new sample, $$f =$$ “purple” or $$f =$$ “gray”? Let’s try and see what happens.

df2 <- data.frame(f = factor(c("blue", "green", "purple", "gray")),
score = rnorm(4))
rec %>%
prep() %>%
bake(new_data = df2)
## # A tibble: 4 x 3
##    score f_green f_red
##    <dbl>   <dbl> <dbl>
## 1  1.39        0     0
## 2  0.616       1     0
## 3 -2.35       NA    NA
## 4 -0.165      NA    NA

We end up propagating missing data, which is obviously less than ideal. Luckily, the solution is pretty straightforward. We just add a new step to our recipe to handle novel (or new) categories, lumping them all in their own level (labeled with the suffix _new).

rec <- recipe(score ~ f, data = df) %>%
step_novel(f) %>%
step_dummy(f)

rec %>%
prep() %>%
bake(new_data = df2)
## # A tibble: 4 x 4
##    score f_green f_red f_new
##    <dbl>   <dbl> <dbl> <dbl>
## 1  1.39        0     0     0
## 2  0.616       1     0     0
## 3 -2.35        0     0     1
## 4 -0.165       0     0     1

This is not perfect, because "purple" and "orange" may be highly different, and we’re modeling them as a single category. But at least we’re able to move forward with our model without introducing new missing data. As an aside, this is a small example of why having good training data is so important. If you don’t have all the levels of a categorical variable represented, you may end up essentially collapsing levels when there is meaningful variance that could be parsed out.

You can also use a similar approach with step_other() if you have a categorical variable with lots of levels (and a small-ish $$n$$ by comparison). Using step_other(), you specify a threshold below which levels should be collapsed into a single “other” category. The threshold can be passed as a proportion or a frequency.

### 31.3.3 Final thoughts on encoding categorical data

There are, of course, many other ways you can encode categorical data. One important consideration is whether or not the variable is ordered (e.g., low, medium, high) in which case it may make sense to have a corresponding ordered numeric variable (e.g., $$0$$, $$1$$, $$2$$). Of course, the method of coding these ordered values will relate to assumptions of your modeling process. For example, in the previous example, we assumed that there is a linear, constant change across categories. In our experience, however, the combination of dummy coding (with potentially a one-hot alternative used), integer coding, or simply leaving the categorical variables as they are (for specific frameworks, like tree-based methods) is sufficient most (but not all) of the time. For a more complete discussion of encoding categorical data for predictive modeling frameworks, we recommend Chapter 5 of Kuhn & Johnson (2019).