Pitfalls of Regression Analysis
Forming Incorrect Hypotheses
Chapter 3 demonstrated how one can regress one set of randomly generated numbers on another set of random numbers without any theory and obtain a coefficient and output and even analyze the results. In this section, another example of erroneous regression analysis is demonstrated to emphasize the importance of theory. Using regression analysis without a theory to guide, it is a waste of time. Let us start with a simple hypothetical example. Afterward, real data will be used to demonstrate the problem.
Assume we have collected the following data, without any theory whatsoever:
Y |
X1 |
X2 |
11 |
5 |
12 |
13 |
12 |
10 |
l7 |
16 |
6 |
l9 |
19 |
4 |
21 |
39 |
1 |
Enter the data into Excel or Stata. ...
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