Underfitting and overfitting are two common problems in machine learning and data modeling. Underfitting occurs when a model is too simple to capture the underlying patterns in the data. This could be due to the model not having enough parameters or the model not being complex enough. As a result, the model performs poorly on both the training data and new, unseen data because it cannot accurately represent the data's complexity. On the other hand, overfitting occurs when a model is too complex and starts to fit the noise in the data. This typically happens when the model has too many parameters relative to the number of observations. The model performs well on the training data because it can fit the data perfectly, including the noise. However, it performs poorly on new, unseen data because the noise it learned from the training data does not generalize to new data. Therefore, the model's ability to predict future observations is compromised. | Financial Risk Manager Part 1 Quiz - LeetQuiz