Abstract #301528

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JSM 2003 Abstract #301528
Activity Number: 17
Type: Contributed
Date/Time: Sunday, August 3, 2003 : 2:00 PM to 3:50 PM
Sponsor: Section on Statistics and Marketing
Abstract - #301528
Title: Multicolinearity Problem in Marketing Studies
Author(s): Igor Mandel*+
Companies: Sigma Marketing Group
Address: 184 Valley Green Dr., Penfield, NY, 14526-1739,
Keywords: multicolinearity ; ridge-regression ; decomposition of determination coefficient ; index numbers ; marketing
Abstract:

Usually the problem of multicolinearity is resolved by taking just one from many highly correlated variables and so on. However, in some cases the essence is exactly in using all those variables. For example, marketing expenses by geographic regions are highly correlated both with each other and with the population in regions. But it's critically important to distinguish the size effect from the effect of money spent in order to make correct decision about the effectiveness of marketing; it's pointless to select just one variable. The ridge regression, designed for such purposes, may fail under some circumstances, which will be demonstrated. New approaches of decomposition of determination coefficient, in combination with ridge regression and index numbers, will be used to solve the problem. The conditions under which different methods may be implemented and the results of a computational experiment will be presented.

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