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Additional Reading
For additional reading see Chapter 15 and Chapter 14 in Michael R. Middletons Data Analysis Using Excel, Duxbury Thompson Publishers, 2000. Example described in this lecture is based in part on Chapter 17 and Chapter 18 of Keller and Warracks Statistics for Management and Economics. Fifth Edition, Duxbury Thompson Learning Publisher, 2000. Read any introductory statistics book about single and multiple variable regression.
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Objectives Purpose of Regression Correlation or Regression? First Order Linear Model Probabilistic Linear Relationship Estimating Regression Parameters Assumptions Sum of squares Tests Percent of variation explained Example Regression Analysis in Excel Normal Probability Plot Residual Plot Goodness of Fit ANOVA For Regression
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Objectives
To learn the assumptions behind and the interpretation of single and multiple variable regression. To use Excel to calculate regressions and test hypotheses.
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Purpose of Regression
To determine whether values of one or more variable are related to the response variable. To predict the value of one variable based on the value of one or more variables. To test hypotheses.
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Correlation or Regression?
Use correlation if you are interested only in whether a relationship exists. Use Regression if you are interested in building a mathematical model that can predict the response variable. Use regression if you are interested in the relative effectiveness of several variables in predicting the response variable.
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y = 0 + 1 * x
Rise
Run
Dependent variable x
Regression line
Residual
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Assumptions
The dependent (response) variable is measured on an interval scale The probability distribution of the error is Normal with mean zero The standard deviation of error is constant and does not depend on values of x The error terms associated with any particular value of Y is independent of error term associated with other values of Y
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Sum of Squares
Variation in y = SSR + SSE MSR divided by MSE is the test statistic for ability of regression to explain the data
Sum of square of differences between Predicted values and mean Regression (SSR) of observations 1 Predicted values and Error (SSE) observations n-2 Observations and mean of Variation in Y observations n-1 Mean sum of square is obtained by dividing SS by degrees of freedom
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Degrees of freedom
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Tests
The hypothesis that the regression equation does not explain variation in Y and can be tested using F test. The hypothesis that the coefficient for x is zero can be tested using t statistic. The hypothesis that the intercept is 0 can be tested using t statistic
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Example
Is waiting time related to satisfaction ratings? Predict what will happen to satisfaction ratings if waiting time reaches 15 minutes?
Patient 1 2 3 4 5 6 7 8 Waiting time 9 7 5 6 8 5 7 8 Satisfaction ratings 80 90 90 100 85 100 85 75
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Residual Plot
Tests that residuals have mean of zero and constant standard deviation Tests that residuals are not dependent on values of x
Residuals
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Linear Equation
Satisfaction = 121.3 4.8* Waiting time At 15 minutes waiting time, satisfaction is predicted to be:
121.3 - 4.8 * 15 = 48.87
The t statistic related to both the intercept and waiting time coefficient are statistically significant. The hypotheses that the coefficients are zero are rejected.
Standard Coefficients Error t Stat P-value Intercept 121.34 10.48 11.58 0.00 Waiting time -4.83 1.50 -3.23 0.02
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Goodness of Fit
57% of variation in satisfaction ratings is explained by the equation 43% of variation in satisfaction ratings is left unexplained
Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations
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