ERIC Number: EJ865965
Record Type: Journal
Publication Date: 2009
Abstractor: As Provided
Reference Count: 9
Logarithmic Transformations in Regression: Do You Transform Back Correctly?
Dambolena, Ismael G.; Eriksen, Steven E.; Kopcso, David P.
PRIMUS, v19 n3 p280-295 2009
The logarithmic transformation is often used in regression analysis for a variety of purposes such as the linearization of a nonlinear relationship between two or more variables. We have noticed that when this transformation is applied to the response variable, the computation of the point estimate of the conditional mean of the original response variable is often incorrect. Although the correct procedure has long been known in the scientific community and is well documented, an incorrect or misleading procedure is used in many business statistics textbooks. This incorrect procedure results in errors that can be quite significant. Our article uses a real-data business example which, in the context of making a decision about an advertising charge for a magazine, illustrates the correct procedure. This example also provides a sense of the magnitude of the error that would result if the incorrect procedure were used. The six percent error in our example could be substantially higher for other applications. (Contains 4 figures.)
Descriptors: Regression (Statistics), Computation, Transformations (Mathematics), Statistical Bias, Decision Making, Business Administration Education, Textbooks, Mathematics Instruction, College Mathematics
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Publication Type: Journal Articles; Reports - Descriptive
Education Level: Higher Education; Postsecondary Education
Authoring Institution: N/A