Predictive analytics can help you lower your risks and make safer decisions.

Every time a company invests in an expensive marketing campaign, they’re taking a risk; there’s always a chance the campaign might fail and millions of dollars will disappear down the drain. However, when predictive analytics are used, a company can reduce that risk.

The purpose of predictive analytics, or PA, is to study human behavior and get a sense of how people will respond to certain situations, such as seeing an advertisement.

It does this by taking into consideration a wide variety of statistics and human characteristics, all of which are focused on understanding individual, as opposed to general, behaviors. So you wouldn’t use PA to determine which advertisement has the broadest appeal; you’d use it to determine the likeliest responses of specific people to specific advertisements.

More precisely: once you enter all your variables, you’re given a predictive score. Now, this score doesn’t tell you the future as much as it tells you how probable certain individual reactions will be.

For example, let’s say you want to know which online ad people in the United States will be most tempted to click on while searching for grants and scholarships. The more variables you supply, such as age, gender and email domain, the more precise the predictive score will be.

These predictive scores are useful to organizations that want to know the best demographics to target for certain discount offers and advertisements, as well as for organizations that want to know which stocks to buy or people to audit.

The predictive model used in PA is more dynamic than other models since it’s based on machine learning, which means it can change, grow and adapt based on the kind of data it is given. And it’s more accurate than other predictive tools since it uses backtesting, which takes old data to determine how accurate your results will be.

So, if you’re trying to predict whether the S&P Index is going to go up or down in a year’s time, with backtesting, you can feed it old data from 1990 to see how accurate it is about the S&P in 1991.