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Lecture 7 - Regression

This document covers the topics of simple linear regression models, the least squares method, assumptions of linear regression models, and testing for significance in linear regression. It includes examples and discusses how regression relates to business planning and process improvement.

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mailtqbh01116
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6 views

Lecture 7 - Regression

This document covers the topics of simple linear regression models, the least squares method, assumptions of linear regression models, and testing for significance in linear regression. It includes examples and discusses how regression relates to business planning and process improvement.

Uploaded by

mailtqbh01116
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Lecture 7

Regression
Contents

1. Simple Linear Regression Model

2. Least Squares Method

3. Model Assumptions

4. Testing for Significance

5. Link to the requirement of P4, P5, P6, M3, M4, D2, D3


Contents

1. Simple Linear Regression Model

2. Least Squares Method

3. Model Assumptions

4. Testing for Significance

5. Link to the requirement of P4, P5, P6, M3, M4, D2, D3


Simple Linear Regression

• Managerial decisions often are based on the relationship


between two or more variables.
• Regression analysis can be used to develop an equation
showing how the variables are related.
• The variable being predicted is called the dependent variable
and is denoted by y.
• The variables being used to predict the value of the
dependent variable are called the independent variables and
are denoted by x.
Simple Linear Regression

• Simple linear regression involves one independent


variable and one dependent variable.
• The relationship between the two variables is
approximated by a straight line.
• Regression analysis involving two or more independent
variables is called multiple regression.
Simple Linear Regression
Simple Linear Regression
Simple Linear Regression
Simple Linear Regression
Estimated Simple Linear
Regression Equation
Estimation Process
Contents

1. Simple Linear Regression Model

2. Least Squares Method

3. Model Assumptions

4. Testing for Significance

5. Link to the requirement of P4, P5, P6, M3, M4, D2, D3


Least Squares Method
Example

• Example: Reed Auto


• Reed Auto periodically has a special week-long sale. As part of the
advertising campaign, Reed runs one or more television commercials during
the weekend preceding the sale. Here are the data from a sample of 5
previous sales:
Example: Run in excel
Example

• Using Excel’s Chart Tools for Scatter Diagram & Estimated


Regression Equation
Contents

1. Simple Linear Regression Model

2. Least Squares Method

3. Model Assumptions

4. Testing for Significance

5. Link to the requirement of P4, P5, P6, M3, M4, D2, D3


Assumptions About the
Error Term 𝜀𝜀
Contents

1. Simple Linear Regression Model

2. Least Squares Method

3. Model Assumptions

4. Testing for Significance

5. Link to the requirement of P4, P5, P6, M3, M4, D2, D3


Testing for Significance

• To test for a significant regression relationship, we must


conduct a hypothesis test to determine whether the value
of 𝛽𝛽1 is zero.
• Two tests commonly used are the 𝑡𝑡 test and 𝐹𝐹 test.
• Both the t test and F test require an estimate of 𝜎𝜎 2 , the
variance of 𝜀𝜀 in the regression model.
Testing for Significance:
t Test
Testing for Significance:
t Test
Example: Reed Auto
Example: Reed Auto

P-value
Example: Reed Auto
Confidence Interval for 𝛽𝛽1
Confidence Interval for 𝛽𝛽1
Contents

1. Simple Linear Regression Model

2. Least Squares Method

3. Model Assumptions

4. Testing for Significance

5. Link to the requirement of P4, P5, P6, M3, M4, D2, D3


P4, M3, D2 Requirements

L3+L4: Measuring the variability in business processes or quality M3: Make valid
management
P4: Application

judgments on
assumptions of
L4: Probability distributions and application to business operations
and processes. statistical tests

L5: One sample T-test: Estimation and Hypotheses testing


D2: Make valid
recommendation
L6:Two sample T-test: Estimation and Hypotheses testing for improving
business
L7: Measuring the association between two variables by regression planning
technique.
P5, P6, M4, D3 Requirements
M4:Evaluate the
use of different
types of charts
and tables.
P5-Theory: Definitions, pros and cons of figures/tables(L3
Descriptive Statistics)
P5+P6

P5-Application: Create figures/tables for variables in your


dataset (L3 Descriptive Statistics)
D3: Justify the
rationale for
P6-Application: L3 Descriptive Statistics choosing the
method of
communication
THE END

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