Question

As a statistical consultant, you have been asked to develop a linear model which shall be given to first year executive MBA students.

Variable           Name                                                   Description

X1                   Gender                                                Male or Female

X2                   GMAT Score                                      Score on GMAT Test

X3                   College Degree Previously Earned     Bachelors, Masters, or PhD

Y                     Income                                                            Annual Income in Thousand Dollars

Where 1=Male and 2= Female for X1 and B = Bachelors Degree, M=Master’s Degree, and P= PhD for X3.

Question Based on above information.

1. Given this data, recode the variables so that they may be used as potential predictors for Y in a linear regression model.   Redefine your categorical variables and write them out here.

Answer 1

a)

Variable           Name                                                   Description

X1                   Gender                                                Male or Female

X2                   GMAT Score Score on GMAT Test

X3                   College Degree Previously Earned     Bachelors, Masters, or PhD

Y                     Income Annual Income in Thousand Dollars

X1 - male is already 1 whereas female is 2. This is perfectly fine as categorical variables have to converted into numerical form.

X2 - GMAT score will already be in numerical form.

X3 - Here, Bachelors can be 0, Masters can be 1 and PhD can be 2.

Y - it should already be in Numerical terms.

We have converted all the variables into numerical terms as machine only understands numeric values.