Lecture 9.2 Regression Revision.pptx

Lecture 9.2 Regression Revision.pptx - 1305AFE Business...

This preview shows page 1 - 8 out of 27 pages.

1305AFE Business Data Analysis Week 10 Simple Linear Regression (Revision) References: Chapter 17 (section 17.1- 17.5)
Image of page 1

Subscribe to view the full document.

objectives To identify the dependent and the independent variables To estimate simple linear regression model parameters Assess the fitness of the linear regression model (R 2 )
Image of page 2
Introduction When the problem objective is to analyse the relationship between numerical variables, correlation and regression analysis is the first tool we will study. Regression analysis is used to predict the value of one variable (the dependent variable ) on the basis of other variables (the independent variables ). Dependent variable: denoted Y Independent variables: denoted X
Image of page 3

Subscribe to view the full document.

A model of the relationship between house size (independent variable) and house price (dependent variable) would be: House size House price Most lots sell for $300 000. Building a house costs about $800 per square meter. Ho use price = 300 000 + 800(Size) In this model, the price of the house is completely determined by the size. A model…
Image of page 4
In real life, however, the house cost will vary even among the same size of house: Same house size, but different price points (e.g. décor options, portico upgrades, lot location…). x House size House price 300K$ Lower vs. higher variability House price = 300 000 + 800(Size) + A model…
Image of page 5

Subscribe to view the full document.

Random term We now represent the price of a house as a function of its size in this probabilistic model: y = 300 000 + 800x + where (Greek letter epsilon) is the random term (also known as error variable ). It is the difference between the actual selling price and the estimated price based on the size of the house. Its value will vary from house sale to house sale, even if the area of the house (i.e. x ) remains the same due to other factors such as the location, age, décor etc of the house.
Image of page 6
Model A straight line model with one independent variable is called a simple linear regression model . It is written as: error variable dependent variable y-intercept slope of the line independe nt variable
Image of page 7

Subscribe to view the full document.

Image of page 8

{[ snackBarMessage ]}

Get FREE access by uploading your study materials

Upload your study materials now and get free access to over 25 million documents.

Upload now for FREE access Or pay now for instant access
Christopher Reinemann
"Before using Course Hero my grade was at 78%. By the end of the semester my grade was at 90%. I could not have done it without all the class material I found."
— Christopher R., University of Rhode Island '15, Course Hero Intern

Ask a question for free

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern