Two variables
regression analysis
Dr. Chitrasen Bhue
Regression
• Regression analysis is largely concerned with estimating
and/or predicting the (population) mean value of the
dependent variable on the basis of the known or fixed values
of the explanatory variable(s)
Table 2.1: Weekly Family Income
What is there in the table
• Population of 60 families in a hypothetical community
• Weekly Income (X) and Weekly Consumption Expenditure (Y)
• 60 families are divided into 10 income groups: $80 to $260
• 10 fixed values of X and the corresponding Y values against each of
the X values
Figure 2.1: Conditional Distribution
of expenditure for various level of
Income
• What is conditional distribution here?
• There is considerable variation in weekly consumption expenditure in each income
group
• Despite the variability of weekly consumption expenditure within each income bracket,
on average, weekly consumption expenditure increases as income increases
• For example, corresponding to the weekly income level of $80, the mean consumption
expenditure is $65 while corresponding to the income level of $200, it is $137.
• We call these mean values conditional expected values, as they depend on the given
values of the (conditioning) variable X.
• Symbolically, we denote them as E(Y | X), which is read as the expected value of Y
given the value of X.
• Difference between Conditional and Unconditional Expected Values
• E(Y|X) and E(Y) how are they different
• What is Expected Values? (We have already discussed it in the
previous chapter, check your class note)
• Table 2.2
Table 2.2: CONDITIONAL PROBABILITIES p(Y |
Xi) FOR THE DATA OF TABLE 2.1
Population Regression Line
• Also known as the Population Regression Curve
• Regression of Y on X
• Geometrically, then, a population regression curve is simply the locus of the
conditional means of the dependent variable for the fixed values of the
explanatory variable(s)
• More simply, it is the curve connecting the means of the subpopulations of Y
corresponding to the given values of the regressor X.
• So, plotting the conditional mean of Y against the fixed values of X from Table
2.1 gives us the population regression line or population regression curve
• We are dealing with Population so it is the Population Regression Line
Figure 2.2: Population Regression
Line
Population Regression Function
(PRF)
• From the preceding discussion and Figures. 2.1 and 2.2, it is clear that each
conditional mean E(Y | Xi ) is a function of Xi, where Xi is a given value of X.
• Symbolically,
E(Y|Xi)= f(Xi)……………..(1)
• Where f ( Xi ) denotes some function of the explanatory variable X. In our
example, E(Y | Xi ) is a linear function of Xi.
• Equation 1 is known as the conditional expectation function (CEF) or
population regression function (PRF) or population regression (PR) for short.