Financial Risk Manager Part 1
Get started today
Ultimate access to all questions.
Deep dive into the quiz with AI chat providers.
We prepare a focused prompt with your quiz and certificate details so each AI can offer a more tailored, in-depth explanation.
What is the extraneous variable in regression diagnostics?
Other
Community
NNikitesh
A
It is a variable which is eliminated to increase the effectiveness of a model
B
It is one that is unnecessarily included in the model, whose actual coefficient and consistently approximated value is 0 in large sample sizes. If we add these variables is costly.
C
It is a variable that is included in a model in case the sample size is not appropriate
D
None of the above
Explanation:
The correct answer is B. An extraneous variable is one that is unnecessarily included in the model, whose actual coefficient and consistently approximated value is 0 in large sample sizes. Adding these variables is costly because:
- Statistical Cost: Including irrelevant variables increases the variance of the estimated coefficients for the relevant variables, reducing the precision of the model.
- Computational Cost: More variables require more computational resources and time.
- Interpretation Cost: Unnecessary variables complicate model interpretation and can lead to overfitting.
Option A is incorrect because extraneous variables are those that are included unnecessarily, not eliminated. Option C is incorrect because extraneous variables are not included as a precaution for sample size issues - they are simply irrelevant variables that should not be in the model. Option D is incorrect because option B accurately describes extraneous variables.
Comments
Loading comments...