Chapter5TransformationsandWeightingtoCorrectModel.ppt

Chapter 5 Transformations and Weighting to Correct Model Inadequacies Ray-Bing Chen Institute of Statistics National University of Kaohsiung 5.1 Introduction Recall several implicit assumptions: The model errors have mean zero and constant variance and are uncorrelated. The model errors have a normal distribution The form of the model, including the specification of the regressors, is correct. Plots of residuals are very powerful methods for detecting violations of these basic regression assumptions. In this chapter, we focus on methods and procedures for building regression models when some of the above assumptions are violated. We place considerable emphasis on data transformation. The method of weighted least squares is also useful in building regression model in situations where some of the underlying assumptions are violated. 5.2 Variance-stabilizing Transformations The assumption of constant variance is a basic requirement of regression analysis. A common reason for the violation of this assumption is for the response variable y to follow a probability distribution in which the variance is functionally related to the mean. For example: Poisson r.v. Several common used variance-stabilizing transformations are in Table 5.1 The strength of a transformations depends on the amount of curvature that it induces. Sometimes we can use prior experience or theoretical considerations to guide us in selecting an appropriate transformation. In these caes the appropriate transformation must be selected empirically. If we do not correct the non-constant error variance problem, then the least-squares estimators will still be unbiased, but they will no longer have the minimum variance property. That is the regression coefficients will have larger standard errors than necessary. When the response variable has been reexpressed, the predicted values are in the transformed scale. The predicted values = the original units Confidence or prediction intervals Example 5.1 The