# Chapter 8

## Introduction to Linear Regression

### Learning Outcomes

• Define the explanatory variable as the independent variable (predictor), and the response variable as the dependent variable (predicted).
• Plot the explanatory variable ($x$) on the x-axis and the response variable ($y$) on the y-axis, and fit a linear regression model $y = \beta_0 + \beta_1 x$ where $\beta_0$ is the intercept, and $\beta_1$ is the slope.
• Note that the point estimates (estimated from observed data) for $\beta_0$ and $\beta_1$ are $b_0$ and $b_1$, respectively.
• When describing the association between two numerical variables, evaluate
• direction: positive ($x \uparrow, y \uparrow$), negative ($x \downarrow, y \uparrow$)
• form: linear or not
• strength: determined by the scatter around the underlying relationship
• Define correlation as the \emph{linear} association between two numerical variables.
• Note that a relationship that is nonlinear is simply called an association.
• Note that correlation coefficient ($r$, also called Pearson’s $r$) the following properties:
• the magnitude (absolute value) of the correlation coefficient measures the strength of the linear association between two numerical variables
• the sign of the correlation coefficient indicates the direction of association
• the correlation coefficient is always between -1 and 1, inclusive, with -1 indicating perfect negative linear association, +1 indicating perfect positive linear association, and 0 indicating no \emph{linear} relationship
• the correlation coefficient is unitless
• since the correlation coefficient is unitless, it is not affected by changes in the center or scale of either variable (such as unit conversions)
• the correlation of X with Y is the same as of Y with X
• the correlation coefficient is sensitive to outliers
• Recall that correlation does not imply causation.
• Define residual ($e$) as the difference between the observed ($y$) and predicted ($\hat{y}$) values of the response variable. $e_i = y_i - \hat{y}_i$
• Define the least squares line as the line that minimizes the sum of the squared residuals, and list conditions necessary for fitting such line:
1. linearity
2. nearly normal residuals
3. constant variability
• Define an indicator variable as a binary explanatory variable (with two levels).
• Calculate the estimate for the slope ($b_1$) as $b_1 = R\frac{s_y}{s_x}$, where $r$ is the correlation coefficient, $s_y$ is the standard deviation of the response variable, and $s_x$ is the standard deviation of the explanatory variable.
• Interpret the slope as
• “For each unit increase in $x$, we would expect $y$ to increase/decrease on average by $|b_1|$ units” when $x$ is numerical.
• “The average increase/decrease in the response variable when between the baseline level and the other level of the explanatory variable is $|b_1|$.” when $x$ is categorical.
• Note that whether the response variable increases or decreases is determined by the sign of $b_1$.
• Note that the least squares line always passes through the average of the response and explanatory variables ($\bar{x},\bar{y}$).
• Use the above property to calculate the estimate for the slope ($b_0$) as $b_0 = \bar{y} - b_1 \bar{x}$, where $b_1$ is the slope, $\bar{y}$ is the average of the response variable, and $\bar{x}$ is the average of explanatory variable.
• Interpret the intercept as
• “When $x = 0$, we would expect $y$ to equal, on average, $b_0$.” when $x$ is numerical.
• “The expected average value of the response variable for the reference level of the explanatory variable is $b_0$.” when $x$ is categorical.
• Predict the value of the response variable for a given value of the explanatory variable, $x^\star$, by plugging in $x^\star$ in the in the linear model: $\hat{y} = b_0 + b_1 x^\star$
• Only predict for values of $x^\star$ that are in the range of the observed data.
• Do not extrapolate beyond the range of the data, unless you are confident that the linear pattern continues.
• Define $R^2$ as the percentage of the variability in the response variable explained by the the explanatory variable.
• For a good model, we would like this number to be as close to 100% as possible.
• This value is calculated as the square of the correlation coefficient, and is between 0 and 1, inclusive.
• Define a leverage point as a point that lies away from the center of the data in the horizontal direction.
• Define an influential point as a point that influences (changes) the slope of the regression line.
• This is usually a leverage point that is away from the trajectory of the rest of the data.
• Do not remove outliers from an analysis without good reason.
• Be cautious about using a categorical explanatory variable when one of the levels has very few observations, as these may act as influential points.
• Determine whether an explanatory variable is a significant predictor for the response variable using the $t$-test and the associated p-value in the regression output.
• Set the null hypothesis testing for the significance of the predictor as $H_0: \beta_1 = 0$, and recognize that the standard software output yields the p-value for the two-sided alternative hypothesis.
• Note that $\beta_1 = 0$ means the regression line is horizontal, hence suggesting that there is no relationship between the explanatory and the response variables.
• Calculate the T score for the hypothesis test as $T_{df}=\frac { b_{ 1 }-{ null\quad value } }{ SE_{ b_{ 1 } } }$ with $df = n - 2$.
• Note that the T score has $n - 2$ degrees of freedom since we lose one degree of freedom for each parameter we estimate, and in this case we estimate the intercept and the slope.
• Note that a hypothesis test for the intercept is often irrelevant since it’s usually out of the range of the data, and hence it is usually an extrapolation.
• Calculate a confidence interval for the slope as $b_1 \pm t^\star_{df} SE_{b_1}$ where $df = n - 2$ and $t^\star_{df}$ is the critical score associated with the given confidence level at the desired degrees of freedom.
• Note that the standard error of the slope estimate $SE_{b_1}$ can be found on the regression output.