Statistics 102H: Colinearity

Administrivia

• Homework due today
• Discussion of project

Stock prices (page 138.)

• we will follow the book closely here
• "Holding all else constant" vs "controling for another variable"

Parcel Handling (page 148.)

• Log lives on percentile scale
  • log(1 + epsilon) = epsilon
  • Always use base e if you want to talk about percents!
  • compounding percents leads to exponental
• log-log models
  • log(Y) = alpha + beta log(X)
  • Y = alpha' X^beta
  • Intrinsically a power-law relationship
  • Nicely captures deminishing marginal returns
  • Called elasticities
• Converting elasticities to slopes and back
• Now look at book/data

Homework

• Read project handout.
• Download project data
• Look at the relationship between price and units
• What do you want to use as a Y variable?
  • Average cost?
  • Total cost? (Ave_cost * units)
  • Log(total cost)
  • log(average cost)?
• Look at a correlation matrix. Which variables are highly colinear with other variables?