Statistics for Business: Decision Making and Analysis, 3rd Edition

25.3 Checking Conditions

The remaining analysis of this regression requires inference, so we must check the conditions of the MRM before continuing. The use of a dummy variable and an interaction does not change the conditions of the MRM: We need to confirm the conditions for linearity and lurking variables, and then check the conditions on the residuals. For this regression the colored scatterplot in Figure 25.3 shows linear, albeit weak, association between Salary and Years for the two groups. As for lurking variables, we can imagine several possible lurking variables when comparing two subsets of managers, such as educational background and business aptitude. Because these might also affect the comparison of salaries, we have to proceed cautiously. ...