regression modelling overview

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Why regression Today’s Lecture: Overview of Regression (1: Motivating Examples)

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This is a set of slides intended to provide some motivating examples for studying regression at University level.

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Page 1: Regression Modelling Overview

Why regression

Today’s Lecture:

Overview of Regression (1:Motivating Examples)

Page 2: Regression Modelling Overview

Why regression

Wine Quality

In “Super Crunchers”, Ian Ayres gives a formula for wine quality as:

Wine quality = 12.145 + 0.00117 × winter rainfall +

0.0614 × average growing season temperature −0.00386 × harvest rainfall

What is this formula telling us?

Page 3: Regression Modelling Overview

Why regression

Motivating examples

1 The relationship between restaurant characteristics andlocation, and the prices charged

2 The relationship between wine price and critic ratings

3 The relationship between various “risk factors” and theoccurence of heart disease

4 One more example I haven’t decided on yet (and isn’ttherefore in the notes yet - suggestions welcome!)

5 Later we will examine the relationship between variouscharacteristics of golfers and the money they earn

Along the way, we will consider “smaller” datasets to illustratespecific points.

Page 4: Regression Modelling Overview

Why regression

Motivating examples 1

New York Restaurants

1 This is intended to give an example of where we want to beby the end of Term 1 - so you have an idea of what we arelearning and why.

2 In other words, relax, sit back and get a feel for what you willbe able to do after we’ve spent a whole term studying it.

Page 5: Regression Modelling Overview

Why regression

Motivating examples 1

Zagat Price Guide

Example (Manhattan Restaurant Pricing)

1 Sheather [2009] suggests you have been retained to advise achef on Menu pricing for a new Italian restaurant inManhattan

2 He provides data from “Zagat Survey 2001: New York CityRestaurants, Zagat, New York”

3 Given a model, you can predict the effect of various restaurantcharacteristics on the kind of price you can charge

4 Specifically, we could try to decide whether you can chargemore for a restaurant that is “East” of the river. This isdenoted by an “indicator” variable which takes on the value 1for a restaurant East of the river, and 0 otherwise

Page 6: Regression Modelling Overview

Why regression

Motivating examples 1

Loading the data

> nyc.df <- read.csv("data/nyc.csv")

> summary(nyc.df)

Case Restaurant Price

Min. : 1.00 Amarone : 1 Min. :19.0

1st Qu.: 42.75 Anche Vivolo: 1 1st Qu.:36.0

Median : 84.50 Andiamo : 1 Median :43.0

Mean : 84.50 Arno : 1 Mean :42.7

3rd Qu.:126.25 Artusi : 1 3rd Qu.:50.0

Max. :168.00 Baci : 1 Max. :65.0

(Other) :162

Food Decor Service

Min. :16.0 Min. : 6.00 Min. :14.0

1st Qu.:19.0 1st Qu.:16.00 1st Qu.:18.0

Median :20.5 Median :18.00 Median :20.0

Mean :20.6 Mean :17.69 Mean :19.4

3rd Qu.:22.0 3rd Qu.:19.00 3rd Qu.:21.0

Max. :25.0 Max. :25.00 Max. :24.0

East

Min. :0.000

1st Qu.:0.000

Median :1.000

Mean :0.631

3rd Qu.:1.000

Max. :1.000

> pairs(nyc.df[, c(3:6)], main = "Pairs plot for Zagat price data")

Page 7: Regression Modelling Overview

Why regression

Motivating examples 1

The data

Price

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Service

Pairs plot for Zagat price data

Page 8: Regression Modelling Overview

Why regression

Motivating examples 1

Loading the data

One of our predictor variables is not continuous. It is aqualitative/categorical/nominal/factor with one level variablewhich we use as an indicator/dummy variable such that it is equalto 1 if the restaurant is East of the river, and 0 otherwise. We canbest examine the relationship between this variable and the Priceby means of a boxplot.

> boxplot(Price ~ East, data = nyc.df, col = "orange",

main = "Effect of East on price", ylab = "Price",

xlab = "East")

Page 9: Regression Modelling Overview

Why regression

Motivating examples 1

The boxplot

0 1

2030

4050

60

Effect of East on price

East

Pric

e

Page 10: Regression Modelling Overview

Why regression

Motivating examples 1

Fitting a model

> nyc.lm1 <- lm(Price ~ Food + Decor + Service +

East, data = nyc.df)

> summary(nyc.lm1)

Call:

lm(formula = Price ~ Food + Decor + Service + East, data = nyc.df)

Residuals:

Min 1Q Median 3Q Max

-14.0465 -3.8837 0.0373 3.3942 17.7491

Coefficients:

Estimate Std. Error t value Pr(>|t|)

(Intercept) -24.023800 4.708359 -5.102 9.24e-07

Food 1.538120 0.368951 4.169 4.96e-05

Decor 1.910087 0.217005 8.802 1.87e-15

Service -0.002727 0.396232 -0.007 0.9945

East 2.068050 0.946739 2.184 0.0304

Residual standard error: 5.738 on 163 degrees of freedom

Multiple R-squared: 0.6279, Adjusted R-squared: 0.6187

F-statistic: 68.76 on 4 and 163 DF, p-value: < 2.2e-16

Page 11: Regression Modelling Overview

Why regression

Motivating examples 1

The model

Price = −24.02 + 1.54xFood + 1.91xDecor + 0xService + 2.07xEast + εi

We can see that the higher the values of xFood , the higher the pricecharged. We can also see that for every unit increase in xFood , thevalue of yPrice increases by 1.54.There doesn’t appear to be a relationship between Service andPrice. This is rather interesting, as it implies you could employBasil Fawlty to look after all the diners.

Page 12: Regression Modelling Overview

Why regression

Motivating examples 1

What to do about Service

The most important thing to note for now is that these values areonly estimates! We will study inference more formally, but for nowwe shall use a

Key Point: Rule of two??????

If the absolute value of an estimate divided by its standard erroris less than 2, we can’t even be sure what sign the estimateshould have

Page 13: Regression Modelling Overview

Why regression

Motivating examples 1

Modifying the model

Some people might remove this variable from our model.> nyc.lm2 <- update(nyc.lm1, Price ~ . - Service)

> summary(nyc.lm2)

Call:

lm(formula = Price ~ Food + Decor + East, data = nyc.df)

Residuals:

Min 1Q Median 3Q Max

-14.0451 -3.8809 0.0389 3.3918 17.7557

Coefficients:

Estimate Std. Error t value Pr(>|t|)

(Intercept) -24.0269 4.6727 -5.142 7.67e-07

Food 1.5363 0.2632 5.838 2.76e-08

Decor 1.9094 0.1900 10.049 < 2e-16

East 2.0670 0.9318 2.218 0.0279

Residual standard error: 5.72 on 164 degrees of freedom

Multiple R-squared: 0.6279, Adjusted R-squared: 0.6211

F-statistic: 92.24 on 3 and 164 DF, p-value: < 2.2e-16

Page 14: Regression Modelling Overview

Why regression

Motivating examples 1

Can you look at the adjusted R2

Key Point: Adjusted R2

?????????

The R2 is a diagnostic (values between 0 and 1) which tells usthe“proportion of variation in Y explained by our model. Theadjusted R2 incorporates a penalty to account for the numberof variables we have used.

What do you notice about the adjusted R-squared?

Page 15: Regression Modelling Overview

Why regression

Motivating examples 1

We could also compare the two models:

Model 1:

Price = −24.02 + 1.54xFood + 1.91xDecor + 0xService + 2.07xEast + εi

Model 2:

Price = −24.03 + 1.54xFood + 1.91xDecor + 2.07xEast + εi

So it looks as if we could indeed suggest prices to charge, based onratings of the other variables.

Page 16: Regression Modelling Overview

Why regression

Motivating examples 1

Residual checking

As well as fitting models, we have to make sure they are sensible.This involves checking all the assumptions we made when fittingthe model. Again, we haven’t said anything about the assumptionsyet. But just to introduce the ideas let’s check two

1 Check that the residuals are Normally distributed

2 Check that the residuals have constant variance

Page 17: Regression Modelling Overview

Why regression

Motivating examples 1

Checking the Normality of the residuals

One method we could use it to examine a histogram of theresiduals:

> hist(resid(nyc.lm2), freq = FALSE)

> curve(dnorm(x, 0, summary(nyc.lm2)$sigma),

add = TRUE, col = "red")

Page 18: Regression Modelling Overview

Why regression

Motivating examples 1

Histogram of resid(nyc.lm2)

resid(nyc.lm2)

Den

sity

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0.00

0.01

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Figure: Histogram of residuals from model fit, normal modelsuperimposed

Page 19: Regression Modelling Overview

Why regression

Motivating examples 1

Checking the constant variance assumption

We will use some kind of plot of residuals against the fitted values(the points on the regression line corresponding to individuals inthe dataset). We start with a simple plot of residuals against fittedvalues.

> plot(fitted(nyc.lm2) ~ resid(nyc.lm2))

Page 20: Regression Modelling Overview

Why regression

Motivating examples 1

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fitte

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c.lm

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Figure: Plot of fitted values versus residuals

Page 21: Regression Modelling Overview

Why regression

Motivating examples 1

Assumption checking

We could conclude that (a) the residuals appear Normal and (b)the variance appears constant.As we are happy with our model, we can answer the mostsubtantive question. Having a restaurant East of the river seems toadd $2.07 to the price you can charge for a meal.

Page 22: Regression Modelling Overview

Why regression

Motivating examples 1

Summary of what we have done

1 We have specified a problem and collected some data

2 We have carried out an exploratory data analysis

3 We have fitted an appropriate model to the data

4 We have checked the assumptions made when fitting thatmodel

5 We have made some adjustments to the model

6 We have attempted to draw some conclusions

Page 23: Regression Modelling Overview

Why regression

Motivating examples 1

What we need to do

1 Think about the kinds of problems we can examine byregression modelling

2 Learn (revise and extend what you did in STAT1401) how tocarry out an exploratory data analysis

3 Learn about the types of models we can build, and theassumptions we make when building them

4 Learn more about how to check the model assumptions, andunderstand some of the problems when they not met

5 Learn more about how to alter the structure of a model, inparticular how to decide in observational studies whichvariables to include and exclude

6 How to interpret the results of model fitting and, whenappropriate, how to carry out statistical inference on theresults

Page 24: Regression Modelling Overview

Why regression

Motivating examples 1

How we can assess this

1 Ask you to discuss the reasons for a particular study, how wedeal with the different variables (exam)

2 Ask you to carry out eda (coursework), or comment on an edathat has been carried out (exam)

3 Fit (coursework) an appropriate model for a particular dataset.Discuss and explain the principles behind various models(exam)

4 Carry out residual checks and make adjustments to a model(coursework), comment on residual checks / explain whyadjustments have been made (exam)

5 Carry out and report a model building exercise (coursework),explain someone else’s model building (exam)

6 Interpret the results of your own (coursework) or someoneelse’s model fitting (exam)

Page 25: Regression Modelling Overview

Why regression

Motivating examples 1

R.D. Cook and S. Weisberg. Applied Regression IncludingComputing and Graphics. John Wiley, Hoboken NJ, 1999.

Simon Sheather. A Modern Approach to Regression with R.Springer Texts in Statistics. Sheather. Springer Verlag, NewYork, 2009.