Dummy variable model
With 2 levels:
The multiple regression equation below, includes a dummy variable (X2) with two levels. This variable then applied to an example concerning pies sales over a holiday period:
holiday
price
Y is pies sales
Intercept/Slope
Dummy variable model
With 2 levels:
Shown below, the category for 'holiday' (X2) is the dummy variable (it has been coded '1' or '0'): X2 = 1, if a holiday occurred during the week X2 = 0, if there was no holiday that week
same slope
different intercept
Shown graphically
Dummy variable model
With 2 levels:
Both X2 = 1 and X2 = 0 have the same slope - just a different intercept. If H0: β = 0 is rejected (the null hypothesis) then it can be said that 'holiday' has a significant effect on pie sales.
Y (sales)
Holiday (X2 = 1)
b0 + b2
Holiday (X2 = 0)
b0
X1 (Price)
12.4 Dummy variables 1
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Transcript
Dummy variable model
With 2 levels:
The multiple regression equation below, includes a dummy variable (X2) with two levels. This variable then applied to an example concerning pies sales over a holiday period:
holiday
price
Y is pies sales
Intercept/Slope
Dummy variable model
With 2 levels:
Shown below, the category for 'holiday' (X2) is the dummy variable (it has been coded '1' or '0'): X2 = 1, if a holiday occurred during the week X2 = 0, if there was no holiday that week
same slope
different intercept
Shown graphically
Dummy variable model
With 2 levels:
Both X2 = 1 and X2 = 0 have the same slope - just a different intercept. If H0: β = 0 is rejected (the null hypothesis) then it can be said that 'holiday' has a significant effect on pie sales.
Y (sales)
Holiday (X2 = 1)
b0 + b2
Holiday (X2 = 0)
b0
X1 (Price)