RegressionAnalysis.pptVIP

Regression Analysis * Module 3 Regression Regression is the attempt to explain the variation in a dependent variable using the variation in independent variables. Regression is thus an explanation of causation. If the independent variable(s) sufficiently explain the variation in the dependent variable, the model can be used for prediction. Independent variable (x) Dependent variable Simple Linear Regression Independent variable (x) Dependent variable (y) The output of a regression is a function that predicts the dependent variable based upon values of the independent variables. Simple regression fits a straight line to the data. y’ = b0 + b1X ± ? b0 (y intercept) B1 = slope = ?y/ ?x ? Simple Linear Regression Independent variable (x) Dependent variable The function will make a prediction for each observed data point. The observation is denoted by y and the prediction is denoted by y. Zero Prediction: y Observation: y ^ ^ Simple Linear Regression For each observation, the variation can be described as: y = y + ε Actual = Explained + Error Zero Prediction error: ε ^ Prediction: y ^ Observation: y Regression Independent variable (x) Dependent variable A least squares regression selects the line with the lowest total sum of squared prediction errors. This value is called the Sum of Squares of Error, or SSE. Calculating SSR Independent variable (x) Dependent variable The Sum of Squares Regression (SSR) is the sum of the squared differences between the prediction for each observation and the population mean. Population mean: y Regression Formulas The Total Sum of Squares (SST) is equal to SSR + SSE. Mathematically, SSR = ∑ ( y – y ) (measure of explained variation) SSE = ∑ ( y – y ) (measure of unexplained variation) SST = SSR + SSE = ∑ ( y – y ) (measure of total variation in y) ^ ^ 2 2 The Coefficient of Determination The proportion of total variation (SST) that is explained by the regression (SSR) is known as t