Understanding Residuals in Regression Analysis, Lecture notes of Economic statistics

The concept of residuals in regression analysis, their importance, and how to interpret them. It also provides instructions on creating a residual plot using statistical software.

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2021/2022

Uploaded on 09/12/2022

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Error = observed - predicted
* perfect line will have the least error
Residual - the difference between an observed value and the value
predicted by the regression line.
residual = observed y - predicted y
=
3.2 Residuals
Also known as
Residual plot - plots the residuals on the vertical axis against
the explanatory variable on the horizontal axis
A residual plot helps us determine how well a regression line fits
the data.
Important property of residuals their sum = zero
*
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Scatter
Plot
0
Residual
Plot
*
*
*
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*
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Error = observed - predicted

  • perfect line will have the least error Residual - the difference between an observed value and the value predicted by the regression line. residual = observed y - predicted y

3.2 Residuals

Also known as Residual plot - plots the residuals on the vertical axis against the explanatory variable on the horizontal axis A residual plot helps us determine how well a regression line fits the data. Important property of residuals their sum = zero

*^ *

Scatter Plot 0 Residual Plot

Analyzing residual plots: ÿ A curved pattern shows the overall pattern is not linear therefore the regression line is not a good model. ÿ (^) A megaphone pattern will be less accurate for larger values of x. ÿ (^) Ideal residuals are scattered.

Interpretation of the residual. The regression line overpredicts/underpredicts the name of y by residual units of y.

Ex.

The following data consists of students scores on the chapter

and 2 tests.

Test #1: 88, 82, 78, 96, 78, 84, 91, 83, 85, 68, 92, 72

Test #2: 100, 86, 67, 91, 71, 102, 91, 81, 86, 91, 89, 78

a) Make a scatter plot of the data

b) Find the LSRL, plot it on your scatter plot.

c) Find the residual for student #1. Show your work.

d) Make a residual plot of the data.