Lesson 12: Binary Variables

March 8, 2016

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Wed, Mar 9

Review:

• Multicollinearity
• Interaction Variables
• Exam 2
• Reading assignments

Presentation:

• Binary variables
  • also known as “Dummy” variables
  • also known as “Indicator” variables
  • value must be either “1” or “0”
• Demonstration with Real Estate Sample data 

Assignment:

• Use the textbook data (black_7e_excel_database) to experiment with Binary variables
  • Use the “Consumer Food” worksheet
  • Recode the “Region” and “Location” variables as Binary variables
  • Run regression with “Household Income”, “Non-Mortgage Debt” and the newly created Binary columns as independent (x) variables attempting to predict “Annual Food Spending” (y).
  • Eliminate insignificant variables from the model
  • Find the best combination of variables maximizing R-Squared and the F statistic simultaneously
  • Produce regression output for your final model