Business Analytics Data Analysis and Decision

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Business Analytics Data Analysis and Decision Making 6th Edition Albright Solutions Manual

Business Analytics: Data Analysis and Decision Making, 6e

Chapter 10: Regression Analysis: Estimating Relationships

Answers to Conceptual Questions

Note to Instructors: Student answers will vary. The responses here are intended to provide
general guidance in terms of concepts that could be discussed.

C.1. This is a case where it is dangerous to infer causality from correlation. Yes, moderately
increased wine consumption could have some beneficial effect on preventing deaths
from heart disease, but there are undoubtedly other factors involved. In fact, it is very
conceivable that some other factor, possibly a cultural factor, drives both increased wine
consumption and fewer deaths from heart disease. At the very least, you shouldn’t infer
that drinking more wine is a magic bullet that will prevent death from heart disease!

C.2. Hopefully, the chapter drove the point home that this is usually a bad practice. You
should have a good reason for deleting outliers. You shouldn’t delete them just to make
an analysis come out better.

C.3. This flat scatter has a simple interpretation: Y is not related to X in the sense that your
prediction of Y will be the same (the height of the flat scatter) regardless of the value of X.

C.4. This high correlation between fitted values and residuals means that you have missed
something. That is, it means that the regression equation could be improved upon by
adding another term, transforming an existing term, or making some other modification. In
a “good” regression, the scatterplot of residuals versus fitted values should be a shapeless
swarm, with a very small correlation.

C.5. The key here is that the adjusted R-square has decreased as more terms have been
added. This implies that the extra terms are “not worth their weight” and should probably
be omitted. Based on parsimony, most analysts would consider Equation 1 the best.
However, keep in mind that such choices are “at the margin.” Probably all three
equations provide very similar predictions.

C.6. The answer to the first question is Yes, because it is a mathematical fact that R-square can
only increase when an extra variable is added to the equation. The answer to the second
question is also Yes, even though the reason is not at all intuitive. This is exactly what
happened in the Bendrix Overhead example. Without actually seeing this in a numerical
example, you would probably conclude, intuitively, that it couldn’t happen.

C.7. Causality can’t be seen from a regression output. Such an output only indicates whether
the variables are related. But for all you know, X could be driving Y, Y could be driving X,
or some other variable could be driving both X and Y, and the regression outputs would
be identical. For examples, look at macroeconomic variables. There are plenty of
relationships, but it’s not usually clear what is causing what.

C.8. You need to lag advertising by “pushing its column down” one or more rows. Then, for
example, Sales in May will be in the same row as Advertising in April, Advertising in March,
and maybe others. (You get to choose the number of lagged columns.) Then you can
regress the Sales variable against the lagged Advertising variables.

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Business Analytics Data Analysis and Decision Making 6th Edition Albright Solutions Manual

Chapter 10: Regression Analysis: Estimating Relationships 2

C.9. Creating the dummy variables is easy enough, either with StatTools or with simple IF
formulas. You can decide which category to use as the reference category (by ignoring
its dummy). However, the regression results will be equivalent, regardless of the category
chosen as the reference category. You just have to interpret each equation’s coefficients
relative to the chosen reference category.

C.10. As explained in Section 10-6c, the interpretation of regression results is simplified when
using log transformations as opposed to other nonlinear transformation. (Besides, they
often provide good fits.) The interpretation is always something like: If X increases by a
given (unit or percentage), Y will change by a given (unit or percentage), where the
correct words in parentheses depend on whether X, Y, or both are log-transformed.

C.11. You could try regressing Per Capita Income (Y) on Number of Cars Per 1000 People (X) for
countries where both are known. Assuming the fit is reasonably good, you could then use
this equation to predict Y from X for countries where X is known but Y isn’t.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.

Visit TestBankBell.com to get complete for all chapters