Caution must be exercised in using regression models for prediction when:
A) the value of the independent variable lies inside the range of observations from which the model was estimated
B) the value of the independent variable lies outside the range of observations from which the model was estimated
C) diminishing returns are present
D) the existence of saturation levels are present
E) none of the above

Question

Quizplus · Accepted Answer

When the value of the independent variable lies outside the range of observations from which the model was estimated, the predictions made by the regression model may be unreliable as they are based on extrapolation. This is because regression models are only valid within the range of the data used to estimate them. When making predictions outside of this range, it is possible for the relationship between the independent and dependent variables to change, and the model may not be able to capture this change.

Caution Must Be Exercised in Using Regression Models for Prediction