Question P25: You have asked your administrative assistant, Cindy, to run a regr

Question

Question P25: You have asked your administrative assistant, Cindy, to run a regression with your weekly departmental expenditure for several years against various tasks that have been completed but with no direct expenditure amount. Cindy runs regression 1 and reports the first part of the results in the table below. Cindy runs a second regression in which she included some more variables that she had initially forgotten to include. Regression2 0.96543 0.932054 0.931778 Regression 1 0.965577 0.932338 0.9319250.286329 0.286021 Multiple R R Square Adjusted R Square Standard Error Observations 495 495 You are immediately suspicious of Cindy's report because: (a) (b) (c) (d) (e) Multiple R-squared went down The adjusted R-squared went down Both (a) and (b) The number of observations did hot change Cindy is a psychopath and shouldn't be trusted

Explanation / Answer

When we add new variables to a Regression Model,

In Regression 1 the value of R-squared is 0.93238 , and the value of R-squared in Regression 2 is 0.932054.

Without loss of generality, the value should increase when new variables are added. However, in Cindy's case the value decreases. So, Cindy's report is suspicious.

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