What does it mean if a regression coefficient is not statistically significant?
Correct Answer
C) The data does not establish an effect distinct from zero
Why this is correct: The data does not establish an effect distinct from zero. The governing concept is statistical significance. An insignificant coefficient (typically p-value > 0.05) means the observed relationship in the sample is too weak to confidently distinguish it from zero effect in the population. It does not prove no effect exists. Why the other choices are wrong: The characteristic definitely has no effect on value is a misinterpretation; insignificance indicates lack of evidence, not proof of no effect. The model must be discarded and rebuilt entirely is too extreme; other coefficients may be valid, or more data may be needed. The coefficient should be doubled to compensate is statistically invalid and would misrepresent the analysis. Exam tip: A statistically insignificant coefficient means the evidence is too weak to support using that variable's effect in your valuation.
Why This Is the Correct Answer
Why this is correct: The data does not establish an effect distinct from zero. The governing concept is statistical significance. An insignificant coefficient (typically p-value > 0.05) means the observed relationship in the sample is too weak to confidently distinguish it from zero effect in the population. It does not prove no effect exists. Why the other choices are wrong: The characteristic definitely has no effect on value is a misinterpretation; insignificance indicates lack of evidence, not proof of no effect. The model must be discarded and rebuilt entirely is too extreme; other coefficients may be valid, or more data may be needed. The coefficient should be doubled to compensate is statistically invalid and would misrepresent the analysis. Exam tip: A statistically insignificant coefficient means the evidence is too weak to support using that variable's effect in your valuation.
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