Ch17 Model Building.ppt

CHAPTER 17Model Building
to pany
Introduction to Business Statistics
fourth edition, by Ronald M. Weiers
Presentation by Priscilla Chaffe-Stengel
Donald N. Stengel
© 2002 The Wadsworth Group
Chapter 17 - Learning Objectives
Build polynomial regression models to describe curvilinear relationships
Apply qualitative variables representing two or three categories.
Use logarithmic transforms in constructing exponential and multiplicative models.
Identify pensate for multicollinearity
Apply stepwise regression
Select the most suitable peting models
© 2002 The Wadsworth Group
Polynomial Models with One Quantitative Predictor Variable
Simple linear regression equation:
Equation for second-order polynomial model:
Equation for third-order polynomial model:
Equation for general polynomial model:
© 2002 The Wadsworth Group
Polynomial Models with Two Quantitative Predictor Variables
First-order model with no interaction:
First-order model with interaction:
Second-order model with no interaction:
Second-order model with interaction:
© 2002 The Wadsworth Group
Models with Qualitative Variables
Equation for a model with a categorical independent variable with two possible states:
where state 1 is shown x = 1
where state 2 is shown x = 0
Equation for a model with a categorical independent variable with three possible states:
where state 1 is shown x1 = 1, x2 = 0
where state 2 is shown x1 = 0, x2 = 1
Where state 3 is shown x1 = 0, x2 = 0
© 2002 The Wadsworth Group
Models with Data Transformations
Exponential Model:
General equation for an exponential model:
Corresponding linear regression equation for an exponential model:
Multiplicative Model:
General equation for a multiplicative model:
Corresponding linear regression equation for a multiplicative model:
© 2002 The Wadsworth Group
Example, Problem
International Data Corporation has reported the following costs per gigabyte of hard drive storage space for years 1995 through 2000. Using x = 1 th