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    Bsacore 1 M7 Mon

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    Bsacore 1 M7 Mon

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    ilalimngputingilaw3
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    BSACORE 1 M7 MON

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    11 views3 pages

    Bsacore 1 M7 Mon

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    ilalimngputingilaw3

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    © All Rights Reserved
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    of 3

    BSA CORE 1

    MANAGERIAL ECONOMICS

    MODULE 7
    Monday

    COEFFICIENT OF DETERMINATION (R2)

    Coefficient of determination or R-squared (R2) is a statistical measure that


    represents the proportion of the variance for a dependent variable that's
    explained by an independent variable or variables in a regression model.
    o Whereas correlation explains the strength of the relationship between an
    independent and dependent variable, R-squared explains to what extent
    the variance of one variable explains the variance of the second variable.
     So, if the R2 of a model is 0.50, then approximately half of the
    observed variation can be explained by the model.

    The coefficient of determination (R²) is a number between 0 and 1 that


    measures how well a statistical model predicts an outcome.
    o The model does not predict the outcome.
     Between 0 and 1, the model partially predicts the outcome.
    o The model perfectly predicts the outcome.
     The coefficient of determination is often written as R2, which is
    pronounced as “r squared.”
     For simple linear regressions, a lowercase r is usually used
    instead (r2).

    The coefficient of determination (R²) measures how well a statistical model


    predicts an outcome.
    o The outcome is represented by the model’s dependent variable.
     The lowest possible value of R² is 0 and the highest possible value
    is 1.
     Put simply, the better a model is at making predictions, the closer
    its R² will be to 1.

    o Example: Coefficient of determination


     Imagine that you perform a simple linear regression that predicts
    students’ exam scores (dependent variable) from their time spent
    studying (independent variable).

    Sources:
    Turney, Shaun. 2022. Coefficient of Determination (R²) | Calculation & Interpretation.
    https://www.scribbr.com/statistics/coefficient-of-determination
    https://www.investopedia.com/terms/r/r-squared.asp
     If the R2 is 0, the linear regression model doesn’t allow you
    to predict exam scores any better than simply estimating that
    everyone has an average exam score.
     If the R2 is between 0 and 1, the model allows you to
    partially predict exam scores.

     The model’s estimates are not perfect, but they’re better than
    simply using the average exam score.
     If the R2 is 1, the model allows you to perfectly predict
    anyone’s exam score.

     More technically, R2 is a measure of goodness of fit.


     It is the proportion of variance in the dependent variable that
    is explained by the model.

    Graphing your linear regression data usually gives you a good clue as to whether
    its R2 is high or low.
    o For example, the graphs below show two sets of simulated data:
     The observations are shown as dots.
     The model’s predictions (the line of best fit) are shown as a black
    line.
     The distance between the observations and their predicted values
    (the residuals) are shown as purple lines.
     You can see in the first dataset that when the R2 is high, the
    observations are close to the model’s predictions.
     In other words, most points are close to the line of best fit.

    Sources:
    Turney, Shaun. 2022. Coefficient of Determination (R²) | Calculation & Interpretation.
    https://www.scribbr.com/statistics/coefficient-of-determination
    https://www.investopedia.com/terms/r/r-squared.asp
    The coefficient of determination is always positive, even when the correlation is
    negative.
    o In contrast, you can see in the second dataset that when the R2 is low, the
    observations are far from the model’s predictions.
     In other words, when the R2 is low, many points are far from the
    line of best fit.

    Sources:
    Turney, Shaun. 2022. Coefficient of Determination (R²) | Calculation & Interpretation.
    https://www.scribbr.com/statistics/coefficient-of-determination
    https://www.investopedia.com/terms/r/r-squared.asp

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