Question

What is dummy variables means? And what do you understand from dummy trap?

Answer 1

A dummy variable or an indicator variable is a quantative variable that represents categorical data, such as sex , race etc .

So dummy variable are dichotomous(1 or 0)quantitative variables.The regression results are easiest to interpret when dummy variables are limited to two specific values, 1 or 0. Where 1 represents the presence of a qualitative attribute, and 0 represents the absence. .

A Dummy variable trap is a situation where the attributes which are highly correlated that is the depict Multicollinearity and one variable predicts the value of others. If we use one hot encoding for handling the categorical data, then one dummy variable that is the attribute, can be predicted with the help of other dummy variables. Hence, one dummy variable is highly correlated with other dummy variables. So When we use all dummy variables for a regression model, it will lead to dummy variable trap.