A regression coefficient for a fireplace comes out negative in a market where fireplaces are valued. What is the most likely explanation?
Correct Answer
B) The sample or model specification is inadequate
Why this is correct: A negative coefficient for a feature known to add value indicates a problem with the regression model, such as omitted variables, multicollinearity, or an unrepresentative sample. Why the other choices are wrong: 'Fireplaces genuinely reduce value in that market' contradicts the given fact that fireplaces are valued. 'The dependent variable was entered incorrectly' is possible but less likely than model specification issues. 'Negative coefficients are normal in this analysis' is false; they should align with market behavior. Exam tip: When regression contradicts market evidence, check the model first—sample size, variable selection, and data quality.
Why This Is the Correct Answer
Why this is correct: A negative coefficient for a feature known to add value indicates a problem with the regression model, such as omitted variables, multicollinearity, or an unrepresentative sample. Why the other choices are wrong: 'Fireplaces genuinely reduce value in that market' contradicts the given fact that fireplaces are valued. 'The dependent variable was entered incorrectly' is possible but less likely than model specification issues. 'Negative coefficients are normal in this analysis' is false; they should align with market behavior. Exam tip: When regression contradicts market evidence, check the model first—sample size, variable selection, and data quality.
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