Mean Squared Error (MSE)

Mean Squared Error, often abbreviated as MSE, is a metric used to evaluate model performance. Unlike Mean Absolute Error (MAE), which provides a direct average of the absolute error magnitudes, MSE squares the errors before averaging them. This seemingly small change has significant implications for how model performance is evaluated.

What is Mean Squared Error (MSE)?

Mean Squared Error calculates the average of the squared differences between the actual values and the predicted values. Think of it this way: for each prediction your model makes, you calculate the error (actual - predicted), square that error, and then find the average of all those squared errors.

Why square the errors?

1. Eliminates Negative Values: Squaring ensures that all error contributions are positive. An error of -10 and an error of +10 represent the same magnitude of mistake, just in opposite directions. Squaring them both results in 100, ensuring they are treated as equally significant deviations from the actual value when averaged. This prevents predictions that are too high from cancelling out predictions that are too low.
2. Penalizes Large Errors More: This is the most distinctive feature of MSE. Squaring gives disproportionately more weight to larger errors. For example:
   • An error of 2 becomes $2^2 = 4$.
   • An error of 10 becomes $10^2 = 100$. The error of 10 is 5 times larger than the error of 2, but its squared value is 25 times larger ($100 / 4 = 25$). This means models that produce occasional large errors will have a much higher MSE compared to models that consistently produce smaller errors, even if their average absolute errors (MAE) are similar. MSE is useful when large errors are particularly undesirable.

Calculating MSE

The formula to calculate MSE is:

$$\text{MSE} = \frac{1}{n} \sum_{i=1}^{n} (y_i - \hat{y}_i)^2$$

Let's unpack the formula:

• $n$ represents the number of data points in your evaluation set (e.g., the test set).
• $y_i$ is the actual, true value for the $i$-th data point.
• $\hat{y}_i$ (read as "y-hat") is the value predicted by your regression model for the $i$-th data point.
• $(y_i - \hat{y}_i)$ is the prediction error (or residual) for the $i$-th data point.
• $(y_i - \hat{y}_i)^2$ is the squared error for that data point.
• $\sum_{i=1}^{n}$ means you sum up these squared errors for all $n$ data points.
• $\frac{1}{n}$ means you divide that total sum by the number of data points to get the mean (average).

Example Calculation

Let's continue with our house price prediction example. We have the actual prices and the model's predictions for five houses:

House	Actual Price ($y_i$)	Predicted Price ($\hat{y}_i$)	Error ($y_i - \hat{y}_i$)	Squared Error ($(y_i - \hat{y}_i)^2$)
1	$200,000	$210,000	$-10,000$	$100,000,000$
2	$350,000	$340,000	$10,000$	$100,000,000$
3	$150,000	$165,000	$-15,000$	$225,000,000$
4	$500,000	$470,000	$30,000$	$900,000,000$
5	$280,000	$285,000	$-5,000$	$25,000,000$
			Sum of Squared Errors:	$1,350,000,000$

To calculate the MSE:

1. Calculate the error for each prediction: $(y_i - \hat{y}_i)$.
2. Square each error: $(y_i - \hat{y}_i)^2$.
3. Sum up all the squared errors: $\sum (y_i - \hat{y}_i)^2 = 1,350,000,000$.
4. Divide by the number of predictions ($n=5$): $$\text{MSE} = \frac{1,350,000,000}{5} = 270,000,000$$

The MSE for this model on this data is $270,000,000$.

Visualizing Squared Errors

The squaring process dramatically highlights larger errors. Let's look at the squared errors from our example:

Squared errors for each house prediction. Notice how the $30,000 error for House 4 results in a squared error of$900,000,000$, which heavily influences the overall average compared to the smaller squared errors from other houses.

Interpreting MSE

• Units: A significant point about MSE is that its units are the square of the original target variable's units. If you are predicting house prices in dollars ($), the MSE is in dollars squared ($$^2$). This makes the raw MSE value less intuitive to interpret directly in terms of the original problem's scale compared to MAE. For our example, an MSE of$270,000,000 $^2$ is hard to relate directly back to a typical house price error.
• Scale Dependency: Like MAE, MSE is scale-dependent. Its magnitude depends heavily on the range of your target variable. An MSE of 1,000 could be large or small depending on whether your target values are typically around 10 or 1,000,000.
• Comparison Tool: MSE is most useful for comparing different regression models trained on the same data and predicting the same target variable. Lower MSE values generally indicate a model with smaller errors overall, especially penalizing models with large outlier errors.
• Sensitivity to Outliers: Due to the squaring, MSE is highly sensitive to outliers. A single prediction that is extremely far off the actual value can drastically inflate the MSE. Whether this sensitivity is desirable depends on your specific application. If large errors are exceptionally costly or dangerous, MSE's sensitivity might be beneficial. If outliers are common and potentially expected noise, MSE might give a distorted picture of typical model performance.

In summary, MSE provides a way to measure average prediction error that strongly penalizes larger deviations. While its squared units can make direct interpretation tricky, it's a standard metric, particularly important in optimization procedures (like gradient descent) and as a foundation for the next metric we'll discuss: Root Mean Squared Error (RMSE).