How can we use a nominal level variable like region (East, West, South, and Midwest) in a regression analysis? How would you manipulate the variable for inclusion in the regression equation?
What will be an ideal response?
If we had a categorical variable with more than two categories, we could create separate dummy variables for each category. Suppose, for instance, the states had been divided into four regions: North, South, Midwest, and West. The four dummy variables that represent this “meta” variable would be as follows: [XEast = 1 if East; 0 otherwise (i.e., not eastern state)], [XSouth = 1 if South; 0 otherwise], [XMidwest = 1 if Midwest; 0 otherwise], [XWest = 1 if West; 0 otherwise.] By coding each region as its own dummy variable we would be able to convert a non-mathematical nominal level variable into four numerical variables that could be used in a regression.
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