A regression model reports an R-squared of 0.82. What does this indicate?
Correct Answer
D) The model explains 82 percent of price variation
Why this is correct: The original explanation states R-squared is "the share of variation in the dependent variable accounted for by the model." An R-squared of 0.82 means 82% of the variation in sale prices in this sample is explained by the independent variables in the model. Why the other choices are wrong: Eighty-two percent of sales fall within the range describes a confidence interval, not R-squared. Each variable contributes 82 percent of the value misinterprets R-squared as an allocation to individual variables. The model will be accurate 82 percent of the time incorrectly implies a prediction accuracy rate. Exam tip: R-squared measures explanatory power within the sample data, not predictive accuracy for new properties.
Why This Is the Correct Answer
Why this is correct: The original explanation states R-squared is "the share of variation in the dependent variable accounted for by the model." An R-squared of 0.82 means 82% of the variation in sale prices in this sample is explained by the independent variables in the model. Why the other choices are wrong: Eighty-two percent of sales fall within the range describes a confidence interval, not R-squared. Each variable contributes 82 percent of the value misinterprets R-squared as an allocation to individual variables. The model will be accurate 82 percent of the time incorrectly implies a prediction accuracy rate. Exam tip: R-squared measures explanatory power within the sample data, not predictive accuracy for new properties.
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