BUSINESS

STATISTICS
Dr. DANISH JUNAID
Business School
BAHRIA UNIVERSITY, ISLAMABAD
Lecture 1 Week 6
SIMPLE LINEAR REGRESSION
 Simple regression analysis is a statistical tool to estimate the mathematical relationship
between Dependent variable (denoted by Y) and Independent variable (denoted by X).
 Predictions are made for dependent variable
 There is only one independent variable in simple linear regression
 Relationship between x and y is described by a linear function
 Changes in x cause changes in y
SIMPLE LINEAR REGRESSION
SIMPLE LINEAR REGRESSION
SIMPLE LINEAR REGRESSION
SIMPLE LINEAR REGRESSION
DETERMINISTIC AND
PROBABILISTIC MODEL
 A mathematical model in which outcomes are precisely determined through known
relationship among dependent and independent variables without the consideration of random
variations
 In such models, a given output will produce the same output
 Deterministic models hypothesized exact relationships between variables
 This relationship allows researchers to make predictions and see how one variable affects
other
 Let’s take an example
DETERMINISTIC AND
PROBABILISTIC MODEL
 Y = 200 + 20x
 Y is a rent of a car, X = no of kilometers
 Initial rent = 200, per mileage change = 50
 If a person takes a car and covers 5km, then how much he has to pay ?
 It means Y = 300 for all those who take car and cover 5km.
 Rent is unique for all who have covered 5km
 It reflects the exact relationships between independent variables and dependent variables
 Its unable to find non-exact relationships such as height of a person from the given age , sale
of ice cream from temperature
DETERMINISTIC AND
PROBABILISTIC MODEL
 Probabilistic model is a mathematical representation of a random phenomenon.
 It estimate the probability of an event occurring based upon its past historical data
 It includes the elements of randomness, and likely to produce different results even with same
initial conditions. There is always an element of chance or uncertainty involved which implies
that there are possible alternate solutions.
 This model includes both deterministic and a random error component. It means that Y = 200
+ 50x + e
DETERMINISTIC AND
PROBABILISTIC MODEL
 Y = a + bx+ e
 X = Height in feet, Y = weight in kg , e = random error
 Initial weight = 8, Weight increased by 9.5kg per feet
 If a person’s height is 6 feet that is x = 6 the y = ?
 But y is not unique for all those whose height is 6 because we can’t determine the weight for
given height because there is non-exact relationship between height and weight.
DETERMINISTIC AND
PROBABILISTIC MODEL
LEAST SQUARE REGRESSION
LINE
x y
1 2
2 4
3 5
4 4
5 5
LEAST SQUARE REGRESSION
LINE
COEFFICIENT OF
DETERMINATION
 It shows the percentage of total variation in Y explained by the explanatory variable X
 It is denoted by R2
 Its value lies between 0 to 1
 The higher R2 the greater the percentage of Y explained by regression and it shows the better
goodness of fit
 R2 closer to zero shows worse fit

COEFFICIENT OF
DETERMINATION