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I have a silly question - I have in model several variables with 100+ possible labels each (like Country that stores country code, Industry storing industry code, etc.) - I have to somehow convert this to a data consumed by a classifier.

I could encode these variables with OHE and have over 400 new variables, but then I have another issue - some of labels in these variables need to stay (so some of newly created variables will stay whatever their statistical importance is) and I cannot drop them, therefore I won't be able to reduce the number of variables from 400 to 50, but rather to 380 and I have a pretty small data set.

How would You guys approach it? Does it even make sense to encode it? I had a thought on that to replace these labels with some unified dict labels like country -> country risk with labels low, medium, high, but that one is not simple as well, but for "political" reasons this will not go through.

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  • $\begingroup$ Please explain OHE! $\endgroup$
    – kjetil b halvorsen ♦
    Commented Jun 29, 2022 at 12:02
  • $\begingroup$ One Hot Encoder to encode categorical variables $\endgroup$
    – funkurlif3
    Commented Jun 29, 2022 at 22:21

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Leave one out variety of mean target encoding comes to mind (with high cardinality, target leakage is a serious concern, so other varieties might be unsuitable). There's a nice flowchart for encoding method selection at https://innovation.alteryx.com/encode-smarter/

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I suggest you look up entity embedding,or general approaches other than one-hot encoding, like this. If you are willing to further go out of your way, I suggest you look up Spectral encoding.

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