In regression analysis, the error term ε is a random variable with a mean or expected value of
A) 0.
B) 1.
C) μ.
D) .

Question

In regression analysis, the error term ε is a random variable with a mean or expected value of
A) 0. 
B) 1. 
C) μ. 
D) .

Quizplus · Accepted Answer

The error term ε represents the difference between the actual dependent variable value and the predicted value by the regression equation. Since the regression equation is trying to fit the best line or curve to the data points, the error term should ideally have a mean or expected value of 0. This means that on average, the predicted value should be equal to the actual value. In other words, the errors should cancel each other out over many observations. Therefore, choice A, which states that the mean of the error term is 0, is the best choice.

In Regression Analysis, the Error Term ε Is a Random