Chapter- Regression Analysis

 Quantitative analysis is the scientific approach to managerial decision

making

 A controllable variable is also called a decision variable.

 In regression, the X variable is known as the independent or

explanatory or predictor Variable.

 The standard deviation of the regression is also called the standard

error of the estimate

 In making a decision, both qualitative and quantitative factors must be

considered.

 For each qualitative variable, the number of dummy variables must

equal one less than the number of categories of the qualitative variable.

List four pitfalls of regression.

 Correlation does not necessarily mean causation.
 If multicollinearity is present, the model is still good for prediction but
interpretation of the individual coefficients is questionable.
 Interpretation outside of the range of X values is questionable.
 The regression equation should not be used to predict a value of Y when
X is zero.
 Using the F-test and concluding a linear relationship is helpful in
predicting Y does not mean that this is the best relationship.
 A statistically significant relationship does not mean practical value.

What is the difference between simple linear regression models and

multiple regression models?
 In simple linear regression a single independent variable is used to
predict the value of a dependent variable.
 While in multiple linear regression two or more independent variables
are used to predict the value of a dependent variable.

 The difference between the two is the number of independent variables.

Multiple regression models have more than one independent variable.

What is R-squared (R2):

 It is a value between 0 and +1 and measures the proportion of
variability in Y that is explained by the regression equation.

R-squared is a statistical measure of how close the data are to the

fitted regression line. ... 0% indicates that the model explains none of the
variability of the response data around its mean. 100% indicates that the
model explains all the variability of the response data around its mean.

What is Adjusted R-squared (R2):

 The adjusted R-squared is a modified version of R-squared that has
been adjusted for the number of predictors in the model.

Discuss the relationship between R2 and adjusted R2.

 The value of R2 can never decrease when more variables are added to the
model;
 The adjusted R2 may decrease when more variables are added to the
model.
 This occurs because the adjusted R2 takes into account the number of
independent variables in the model.

Explain what the correlation coefficient is.

 It is a value between -1 and +1 that measures the strength of the linear
relationship between the X and Y variables.
Points related to Regression Analysis
 Quantitative analysis is the scientific approach to managerial decision
making

 A controllable variable is also called a decision variable.

 In regression, the X variable is known as the independent or explanatory or

predictor variable.

 The standard deviation of the regression is also called the standard error of
the estimate

 In making a decision, both qualitative and quantitative factors must be

considered.

 When the independent variables are correlated with each other,

multicollinearity or collinearity is said to exist.

P Value and Regression Analysis

A small p-value (typically ≤ 0.05) indicates strong evidence against the null
hypothesis, so you reject the null hypothesis. ... A large p-value (> 0.05)
indicates weak evidence against the null hypothesis, so you fail to reject the
null hypothesis.

A p-value tells you the probability of having a result that is equal to

or greater than the result you achieved under your specific hypothesis. It is a
probability and, as a probability, it ranges from 0-1.0 and cannot exceed one.