Which algorithm alternately merges branches and reassigns groups of observations?

The correct answer is the heuristic algorithm. Heuristic algorithms are designed to optimize the grouping of observations through iterative processes. In the context of analytics and data mining, they involve making incremental changes — such as merging branches and reassigning groups of observations — in order to find a more effective solution to a problem. This approach is pragmatic and may not guarantee an optimal solution, but it often converges quickly on a satisfactory result, especially for complex datasets.

Other methods listed, such as association, regression, and classification, have different primary focuses. Association is typically concerned with identifying relationships between variables, regression is used for predicting a continuous outcome based on predictor variables, and classification aims to assign observations to predefined categories based on input features. While these algorithms are fundamental and serve important roles in data analysis, they do not involve the specific iterative merging and reassignment process characteristic of heuristic algorithms.