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CH 5 Regression

Regression analysis is used to determine the strength and direction of the relationship between variables and to predict the value of a dependent variable based on the value of an independent variable. Simple linear regression models estimate a dependent variable (y) as a linear combination of the independent variable (x) plus an error term. The least squares method is used to minimize the sum of the squared errors by solving the normal equations to estimate the coefficients (a and b) of the regression line. The coefficient of determination (R2) indicates how well the regression line approximates the real data points, with higher R2 values indicating a better fit.

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46 views6 pages

CH 5 Regression

Regression analysis is used to determine the strength and direction of the relationship between variables and to predict the value of a dependent variable based on the value of an independent variable. Simple linear regression models estimate a dependent variable (y) as a linear combination of the independent variable (x) plus an error term. The least squares method is used to minimize the sum of the squared errors by solving the normal equations to estimate the coefficients (a and b) of the regression line. The coefficient of determination (R2) indicates how well the regression line approximates the real data points, with higher R2 values indicating a better fit.

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Regression Analysis

• Existence & degree of association : Correlation


• Extent of causal relationship: Regression

• Simple Linear regression model:


– Estimated y is ŷ = a + b x
Least square method
• If yi = a + b xi + ei
i.e., actual y = ŷ + error value
• Then minimize the squared sum of ei
n n 2

e
i 1
2
i    yˆ
i 1
i  ( a  bxi )
• Solving the following two normal equations for a and b
 y  na  b x
 xy  a x  b x 2

• Alternatively

 xy   x y
S xy n
b 
S xx  x
2

x  n
2

a
 y
b
 x
n n
Coefficient of Determination
 x y 
2

2  xy  
S xy  n 
R2  
S xx S yy 
 x 
2  x
2
 
  y 
2  y 
2


 n 

n 

• R2 : Proportion of variation of values of y explained by the


regression model.
• 0≤ R2 ≤1
• R2 = 1, indicates the regression line is a perfect
estimation of linear relationship between x & y.
• R2 = 0, indicates no relationship
Example: Sales manager intends to see the relationship between the
constituents of a food product and the consumer’s preference. He
identified a potential costumer and got his preferences on a 1-9 scale on 10
different alternative products with varying protein contents.

Consumer’s Preferences Protein


rating attempts (Y) (X)
1 3 4
2 7 9
3 2 3
4 1 1
5 6 3
6 2 4
7 8 7
8 3 3
9 9 8
10 2 1
• The normal equations: 10a + 43b = 43
43a + 255b = 247
• so estimated b = 0.886 and a = 0.491
• Regression line : ŷ = 0.491 + 0.886x
• The regression coefficient b = 0.886 indicates the change in
consumer’s preference with unit change in protein contents.
• Coefficient of Determination , R2 = 0.723
It implies that 72.3% of the variation in preference levels is
explained by the estimated line and the remaining 27.7% of
the variation may be explained either by other variables or
errors in measurements or both.

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