Business Applications of Multiple Regression

CHAPTER 4

Model Building

In business, we build regression models to accomplish something. Typi-

cally, either we wish to explain the behavior of the dependent variable or

we wish to forecast the future behavior of the dependent variable based

on the expected future behavior of the independent variables. Often,

we wish to do both. In order to accomplish this, we select variables that

we believe will help us explain or forecast the dependent variable. If the

dependent variable were sales, for example, then we would select indepen-

dent variables like advertising, pricing, competitor actions, the economy,

and so on. We would not select independent variables like supplier lead

time or corporate income tax rates because these variables are ...