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Chapter 13. Simple Linear Regression Analysis. Simple Linear Regression. 13.1The Simple Linear Regression Model and the Least Square Point Estimates 13.2Model Assumptions and the Standard Error 13.3Testing the Significance of Slope and y-Intercept 13.4Confidence and Prediction Intervals.

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Chapter 13

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Chapter 13

Chapter 13

Simple Linear Regression Analysis


Simple linear regression

Simple Linear Regression

13.1The Simple Linear Regression Model and the Least Square Point Estimates

13.2Model Assumptions and the Standard Error

13.3Testing the Significance of Slope and y-Intercept

13.4Confidence and Prediction Intervals


Simple linear regression continued

Simple Linear Regression Continued

13.5Simple Coefficients of Determination and Correlation

13.6Testing the Significance of the Population Correlation Coefficient (Optional)

13.7An F Test for the Model

13.8Residual Analysis (Optional)

13.9Some Shortcut Formulas (Optional)


The simple linear regression model and the least squares point estimates

The Simple Linear Regression Model and the Least Squares Point Estimates

  • The dependent (or response) variable is the variable we wish to understand or predict

  • The independent (or predictor) variable is the variable we will use to understand or predict the dependent variable

  • Regression analysis is a statistical technique that uses observed data to relate the dependent variable to one or more independent variables


Objective of regression analysis

Objective of Regression Analysis

The objective of regression analysis is to build a regression model (or predictive equation) that can be used to describe, predict and control the dependent variable on the basis of the independent variable


Example 13 1 fuel consumption case 1

Example 13.1: Fuel ConsumptionCase #1


Example 13 1 fuel consumption case 2

Example 13.1: Fuel ConsumptionCase #2


Example 13 1 fuel consumption case 3

Example 13.1: Fuel ConsumptionCase #3


Example 13 1 fuel consumption case 4

Example 13.1: Fuel ConsumptionCase #4

  • The values of β0 and β1 determine the value of the mean weekly fuel consumption μy|x

  • Because we do not know the true values of β0 and β1, we cannot actually calculate the mean weekly fuel consumptions

  • We will learn how to estimate β0 and β1 in the next section

  • For now, when we say that μy|x is related to x by a straight line, we mean the different mean weekly fuel consumptions and average hourly temperatures lie in a straight line


Form of the simple linear regression model

Form of The Simple Linear Regression Model

  • y = β0 + β1x + ε

  • y = β0 + β1x + ε is the mean value of the dependent variable y when the value of the independent variable is x

  • β0 is the y-intercept; the mean of y when x is 0

  • β1 is the slope; the change in the mean of y per unit change in x

  • εis an error term that describes the effect on y of all factors other than x


Regression terms

Regression Terms

  • β0 and β1 are called regression parameters

  • β0 is the y-intercept and β1 is the slope

  • We do not know the true values of these parameters

  • So, we must use sample data to estimate them

  • b0 is the estimate of β0 and b1 is the estimate of β1


The simple linear regression model illustrated

The Simple Linear Regression Model Illustrated


The least squares estimates and point estimation and prediction

The Least Squares Estimates, andPoint Estimation and Prediction

  • The true values of β0 and β1 are unknown

  • Therefore, we must use observed data to compute statistics that estimate these parameters

  • Will compute b0 to estimate β0 and b1 to estimate β1


The least squares point estimates

The Least Squares Point Estimates

  • Estimation/prediction equationŷ = b0 + b1x

  • Least squares point estimate of the slope β1


The least squares point estimates continued

The Least Squares Point EstimatesContinued

  • Least squares point estimate of the y-intercept 0


Example 13 3 fuel consumption case 1

Example 13.3: Fuel Consumption Case #1


Example 13 3 fuel consumption case 2

Example 13.3: Fuel Consumption Case #2

  • From last slide,

    • Σyi = 81.7

    • Σxi = 351.8

    • Σx2i = 16,874.76

    • Σxiyi = 3,413.11

  • Once we have these values, we no longer need the raw data

  • Calculation of b0 and b1 uses these totals


Example 13 3 fuel consumption case 3 slope b 1

Example 13.3: Fuel Consumption Case #3 (Slope b1)


Example 13 3 fuel consumption case 4 y intercept b 0

Example 13.3: Fuel Consumption Case #4 (y-Intercept b0)


Example 13 3 fuel consumption case 5

Example 13.3: Fuel Consumption Case #5

  • Prediction (x = 40)

  • ŷ = b0 + b1x = 15.84 + (-0.1279)(28)

  • ŷ = 12.2588 MMcf of Gas


Example 13 3 fuel consumption case 6

Example 13.3: Fuel Consumption Case #6


Example 13 3 the danger of extrapolation outside the experimental region

Example 13.3: The Danger of Extrapolation Outside The Experimental Region


Model assumptions

Model Assumptions

  • Mean of ZeroAt any given value of x, the population of potential error term values has a mean equal to zero

  • Constant Variance AssumptionAt any given value of x, the population of potential error term values has a variance that does not depend on the value of x

  • Normality AssumptionAt any given value of x, the population of potential error term values has a normal distribution

  • Independence AssumptionAny one value of the error term ε is statistically independent of any other value of ε


Model assumptions illustrated

Model Assumptions Illustrated


Sum of squared errors

Sum of Squared Errors


Mean square error

Mean Square Error

  • This is the point estimate of the residual variance σ2

  • SSE is from last slide


Standard error

Standard Error

  • This is the point estimate of the residual standard deviation σ

  • MSE is from last slide


Example 13 5 fuel consumption case

Example 13.5: Fuel ConsumptionCase


Testing the significance of the slope

Testing the Significance of the Slope

  • A regression model is not likely to be useful unless there is a significant relationship between x and y

  • To test significance, we use the null hypothesis:H0: β1 = 0

  • Versus the alternative hypothesis:Ha: β1 ≠ 0


Testing the significance of the slope 2

Testing the Significance of the Slope #2

If the regression assumptions hold, we can reject H0: 1 = 0 at the  level of significance (probability of Type I error equal to ) if and only if the appropriate rejection point condition holds or, equivalently, if the corresponding p-value is less than 


Testing the significance of the slope 3

Testing the Significance of the Slope #3


Testing the significance of the slope 4

Testing the Significance of the Slope #4

  • Test Statistics

  • 100(1-α)% Confidence Interval for β1[b1± t /2 Sb1]

  • t, t/2 and p-values are based on n–2 degrees of freedom


Example 13 6 minitab output of regression on fuel consumption data

Example 13.6: MINITAB Output of Regression on Fuel Consumption Data


Example 13 6 excel output of regression on fuel consumption data

Example 13.6: Excel Output of Regression on Fuel Consumption Data


Example 13 6 fuel consumption case

Example 13.6: Fuel ConsumptionCase

  • The p-value for testing H0 versus Ha is twice the area to the right of |t|=7.33 with n-2=6 degrees of freedom

  • In this case, the p-value is 0.0003

  • We can reject H0 in favor of Ha at level of significance 0.05, 0.01, or 0.001

  • We therefore have strong evidence that x is significantly related to y and that the regression model is significant


A confidence interval for the slope

A Confidence Interval for the Slope

  • If the regression assumptions hold, a 100(1-) percent confidence interval for the true slope B1 is

    • b1± t/2sb

  • Here t is based on n - 2 degrees of freedom


Example 13 7 fuel consumption case

Example 13.7: Fuel ConsumptionCase

  • An earlier printout tells us:

    • b1 = -0.12792

    • sb1 = 0.01746

  • We have n-2=6 degrees of freedom

    • That gives us a t-value of 2.447 for a 95 percent confidence interval

  • [b1± t0.025 · sb1] = [-0.12792 ± 0.01746] = [-0.1706, -0.0852]


Testing the significance of the y intercept

Testing the Significance of the y-Intercept

If the regression assumptions hold, we can reject H0: 0 = 0 at the  level of significance (probability of Type I error equal to ) if and only if the appropriate rejection point condition holds or, equivalently, if the corresponding p-value is less than 


Testing the significance of the y intercept 2

Testing the Significance of the y-Intercept #2


Testing the significance of the y intercept 3

Testing the Significance of the y-Intercept #3


Confidence and prediction intervals

Confidence and Prediction Intervals

  • The point on the regression line corresponding to a particular value of x0 of the independent variable x is ŷ = b0 + b1x0

  • It is unlikely that this value will equal the mean value of y when x equals x0

  • Therefore, we need to place bounds on how far the predicted value might be from the actual value

  • We can do this by calculating a confidence interval mean for the value of y and a prediction interval for an individual value of y


Distance value

Distance Value

  • Both the confidence interval for the mean value of y and the prediction interval for an individual value of y employ a quantity called the distance value

  • The distance value for a particular value x0 of x is

  • The distance value is a measure of the distance between the value x0 of x and x

  • Notice that the further x0 is from x, the larger the distance value


A confidence interval for a mean value of y

A Confidence Interval for a Mean Value of y

  • Assume that the regression assumption holds

  • The formula for a 100(1-a) confidence interval for the mean value of y is as follows:

  • This is based on n-2 degrees of freedom


Example 13 9 fuel consumption case

Example 13.9: Fuel ConsumptionCase

  • From before:

    • n = 8

    • x0 = 40

    • x = 43.98

    • SSxx = 1,404.355

  • The distance value is


Example 13 9 fuel consumption case continued

Example 13.9: Fuel ConsumptionCase Continued

  • From before

    • x0 = 40 is 10.72 MMcf

    • t = 2.447

    • s = 0.6542

    • Distance value is 0.1363

  • The confidence interval is


A prediction interval for an individual value of y

A Prediction Interval for an IndividualValue of y

  • Assume that the regression assumption holds

  • The formula for a 100(1-) prediction interval for an individual value of y is as follows:

  • This is based on n-2 degrees of freedom


Example 13 9 fuel consumption case1

Example 13.9: Fuel ConsumptionCase

  • From before

    • x0 = 40 is 10.72 MMcf

    • t = 2.447

    • s = 0.6542

    • Distance value is 0.1363

  • The prediction interval is


Example 13 9 minitab best fit line for fuel consumption data

Example 13.9: MINITAB Best Fit Line for Fuel Consumption Data


Example 13 9 minitab scale of values of fuel consumption

Example 13.9: MINITAB Scale of Values of Fuel Consumption


Which to use

Which to Use?

  • The prediction interval is useful if it is important to predict an individual value of the dependent variable

  • A confidence interval is useful if it is important to estimate the mean value

  • The prediction interval will always be wider than the confidence interval


The simple coefficient of determination and correlation

The Simple Coefficient of Determination and Correlation

  • How useful is a particular regression model?

  • One measure of usefulness is the simple coefficient of determination

  • It is represented by the symbol r2


Prediction errors for fuel consumption data when not using information in x

Prediction Errors for Fuel Consumption Data When Not Using Information in X


Prediction errors for fuel consumption data when using information in x

Prediction Errors for Fuel Consumption Data When Using Information in X


Calculating the simple coefficient of determination

Calculating The Simple Coefficient ofDetermination

  • Total variation is given by the formula (yi-ȳ)2

  • Explained variation is given by the formula (ŷi-ȳ)2

  • Unexplained variation is given by the formula (yi-ŷ)2

  • Total variation is the sum of explained and unexplained variation

  • r2 is the ratio of explained variation to total variation


What does r 2 mean

What Does r2 Mean?

The coefficient of determination, r2, is the proportion of the total variation in the n observed values of the dependent variable that is explained by the simple linear regression model


Example 13 11 fuel consumption case

Example 13.11: Fuel Consumption Case


The simple correlation coefficient

The Simple Correlation Coefficient

  • The simple correlation coefficient measures the strength of the linear relationship between y and x and is denoted by r

  • Where b1 is the slope of the least squares line


Different values of the correlation coefficient

Different Values of the CorrelationCoefficient


Example 13 13 fuel consumption case

Example 13.13: Fuel Consumption Case


Two important points

The value of the simple correlation coefficient (r) is not the slope of the least square line

That value is estimated by b1

High correlation does not imply that a cause-and-effect relationship exists

It simply implies that x and y tend to move together in a linear fashion

Scientific theory is required to show a cause-and-effect relationship

Two Important Points


Testing the significance of the population correlation coefficient

Testing the Significance of thePopulation Correlation Coefficient

  • The simple correlation coefficient (r) measures the linear relationship between the observed values of x and y from the sample

  • The population correlation coefficient (ρ) measures the linear relationship between all possible combinations of observed values of x and y

  • r is an estimate of ρ


Testing

Testing ρ

  • We can test to see if the correlation is significant using the hypothesesH0: ρ = 0Ha: ρ ≠ 0

  • The statistic is

  • This test will give the same results as the test for significance on the slope coefficient b1


An f test for model

An F Test for Model

  • For simple regression, this is another way to test the null hypothesisH0: β1 = 0

  • This is the only test we will use for multiple regression

  • The F test tests the significance of the overall regression relationship between x and y


Mechanics of the f test

Mechanics of the F Test

  • To test H0: β1= 0 versus Ha: β1 0 at the a level of significance

  • Test statistics based on F

  • Reject H0 if F(model) > Fa or p-value < a

  • Fa is based on 1 numerator and n-2 denominator degrees of freedom


Mechanics of the f test graphically

Mechanics of the F Test Graphically


Example 13 15 fuel consumption case

Example 13.15: Fuel Consumption Case

F-test at  = 0.05 level of significance

Test Statistic

Reject H0 at  level of significance, since

Fais based on 1 numerator and 6 denominator degrees of freedom


Residual analysis 1

Residual Analysis #1

  • Checks of regression assumptions are performed by analyzing the regression residuals

  • Residuals (e) are defined as the difference between the observed value of y and the predicted value of y, e = y - ŷ

  • Note that e is the point estimate of ε

  • If the regression assumptions are valid, the population of potential error terms will be normally distributed with a mean of zero and a variance σ2

  • Furthermore, the different error terms will be statistically independent


Residual analysis 2

Residual Analysis #2

  • The residuals should look like they have been randomly and independently selected from normally distributed populations having mean zero and variance σ2

  • With any real data, assumptions will not hold exactly

  • Mild departures do not affect our ability to make statistical inferences

  • In checking assumptions, we are looking for pronounced departures from the assumptions

  • So, only require residuals to approximately fit the description above


Residual plots

Residual Plots

  • Residuals versus independent variable

  • Residuals versus predicted y’s

  • Residuals in time order (if the response is a time series)


Constant variance assumptions

Constant Variance Assumptions

  • To check the validity of the constant variance assumption, examine residual plots against

    • The x values

    • The predicted y values

    • Time (when data is time series)

  • A pattern that fans out says the variance is increasing rather than staying constant

  • A pattern that funnels in says the variance is decreasing rather than staying constant

  • A pattern that is evenly spread within a band says the assumption has been met


Constant variance visually

Constant Variance Visually


Example 13 16 the qhic case residuals versus value

Example 13.16: The QHIC CaseResiduals Versus Value


Example 13 16 the qhic case residuals versus the fitted values

Example 13.16: The QHIC CaseResiduals Versus the Fitted Values


Assumption of correct functional form

Assumption of Correct FunctionalForm

  • If the relationship between x and y is something other than a linear one, the residual plot will often suggest a form more appropriate for the model

  • For example, if there is a curved relationship between x and y, a plot of residuals will often show a curved relationship


Normality assumption

Normality Assumption

  • If the normality assumption holds, a histogram or stem-and-leaf display of residuals should look bell-shaped and symmetric

  • Another way to check is a normal plot of residuals

    • Order residuals from smallest to largest

    • Plot e(i) on vertical axis against z(i)

      • Z(i) is the point on the horizontal axis under the z curve so the area under this curve to the left is (3i-1)/(3n+1)

  • If the normality assumption holds, the plot should have a straight-line appearance


Example 13 18 the qhic case normal probability plot of the residuals

Example 13.18: The QHIC CaseNormal Probability Plot of the Residuals


Independence assumption

Independence Assumption

  • Independence assumption is most likely to be violated when the data are time-series data

    • If the data is not time series, then it can be reordered without affecting the data

    • Changing the order would change the interdependence of the data

  • For time-series data, the time-ordered error terms can be autocorrelated

    • Positive autocorrelation is when a positive error term in time period i tends to be followed by another positive value in i+k

    • Negative autocorrelation is when a positive error term in time period i tends to be followed by a negative value in i+k

  • Either one will cause a cyclical error term over time


Independence assumption visually positive autocorrelation

Independence Assumption VisuallyPositive Autocorrelation


Independence assumption visually negative autocorrelation

Independence Assumption VisuallyNegative Autocorrelation


Some shortcut formulas

Some Shortcut Formulas

where


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