This is the program for the 2010 Joint Statistical Meetings in Vancouver, British Columbia.

Abstract Details

Activity Number: 247
Type: Contributed
Date/Time: Monday, August 2, 2010 : 2:00 PM to 3:50 PM
Sponsor: Section on Statistical Education
Abstract - #308409
Title: R-Squared and the Law of Diminishing Returns
Author(s): J. B. Orris*+
Companies: Butler University
Address: Butler University, College of Business, Indianapolis, IN, 46208,
Keywords: r-squared ; multiple regression ; regression

When students initially learn multiple regression they often believe that they can improve predictability by adding more and more variables to their model. This paper uses examples and simulation results to develop a graphical method for illustrating the impact of adding additional variables to a regression model. Each additional variable added to a model generally contributes less than the preceding variable and usually after three or four variables the R-squared value levels off and the adjusted R-squared starts to decrease. Relating this concept to economics concept of diminishing returns reinforces the idea for students by relating it to a topic that many of them encounter in an introductory economics course.

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