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

• The method may not assign extreme outliers to any cluster.
• The resulting dendrogram can be used to obtain different numbers of clusters.
• The method is not robust to small changes in the data.

• 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 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.