18.1.1 Observed data

We start the chapter with a hypothetical example describing the linear relationship between dollars spent advertising for a chain sandwich restaurant and monthly revenue. The hypothetical example serves the purpose of illustrating how a linear model varies from sample to sample. Because we have made up the example and the data (and the entire population), we can take many many samples from the population to visualize the variability. Note that in real life, we always have exactly one sample (that is, one dataset), and through the inference process, we imagine what might have happened had we taken a different sample. The change from sample to sample leads to an understanding of how the single observed dataset is different from the population of values, which is typically the fundamental goal of inference.

Consider the following hypothetical population of all of the sandwich stores of a particular chain seen in Figure 18.1. In this made-up world, the CEO actually has all the relevant data, which is why they can plot it here. The CEO is omniscient and can write down the population model which describes the true population relationship between the advertising dollars and revenue. There appears to be a linear relationship between advertising dollars and revenue (both in $1,000).

You may remember from Chapter 5 that the population model is: \[y = \beta_0 + \beta_1 x + \varepsilon.\]

Again, the omniscient CEO (with the full population information) can write down the true population model as: \[\texttt{expected revenue} = 11.23 + 4.8 \times \texttt{advertising}.\]

18.1.2 Variability of the statistic

Unfortunately, in our scenario, the CEO is not willing to part with the full set of data, but they will allow potential franchise buyers to see a small sample of the data in order to help the potential buyer decide whether or not set up a new franchise. The CEO is willing to give each potential franchise buyer a random sample of data from 20 stores.

As with any numerical characteristic which describes a subset of the population, the estimated slope of a sample will vary from sample to sample. Consider the linear model which describes revenue (in $1,000) based on advertising dollars (in $1,000).

The least squares regression model uses the data to find a sample linear fit: \[\hat{y} = b_0 + b_1 x.\]

A random sample of 20 stores shows a different least square regression line depending on which observations are selected. A subset of size 20 stores shows a similar positive trend between advertising and revenue (to what we saw in Figure 18.1 which described the population) despite having fewer observations on the plot.

A second sample of size 20 also shows a positive trend!

But the lines are slightly different!

That is, there is variability in the regression line from sample to sample. The concept of the sampling variability is something you’ve seen before, but in this lesson, you will focus on the variability of the line often measured through the variability of a single statistic: the slope of the line.

You might notice in Figure 18.5 that the \(\hat{y}\) values given by the lines are much more consistent in the middle of the dataset than at the ends. The reason is that the data itself anchors the lines in such a way that the line must pass through the center of the data cloud. The effect of the fan-shaped lines is that predicted revenue for advertising close to $4,000 will be much more precise than the revenue predictions made for $1,000 or $7,000 of advertising.

The distribution of slopes (for samples of size \(n=20\)) can be seen in a histogram, as in Figure 18.6.

Recall, the example described in this introduction is hypothetical. That is, we created an entire population in order demonstrate how the slope of a line would vary from sample to sample. The tools in this textbook are designed to evaluate only one single sample of data. With actual studies, we do not have repeated samples, so we are not able to use repeated samples to visualize the variability in slopes. We have seen variability in samples throughout this text, so it should not come as a surprise that different samples will produce different linear models. However, it is nice to visually consider the linear models produced by different slopes. Additionally, as with measuring the variability of previous statistics (e.g., \(\overline{X}_1 - \overline{X}_2\) or \(\hat{p}_1 - \hat{p}_2\)), the histogram of the sample statistics can provide information related to inferential considerations.

In the following sections, the distribution (i.e., histogram) of \(b_1\) (the estimated slope coefficient) will be constructed in the same three ways that, by now, may be familiar to you. First (in Section 18.2), the distribution of \(b_1\) when \(\beta_1 = 0\) is constructed by randomizing (permuting) the response variable. Next (in Section 18.3), we can bootstrap the data by taking random samples of size n from the original dataset. And last (in Section 18.4), we use mathematical tools to describe the variability using the \(t\)-distribution that was first encountered in Section 13.2.

18.2.1 Observed data

We will continue to use the births data to investigate the linear relationship between weight and weeks gestation. Note that the least squares model (see Chapter 5) describing the relationship is given in Table 18.1. The columns in Table 18.1 are further described in Section 18.4.

18.2.2 Variability of the statistic

After permuting the data, the least squares estimate of the line can be computed. Repeated permutations and slope calculations describe the variability in the line (i.e., in the slope) due only to the natural variability and not due to a relationship between weight and weeks gestation. Figure 18.9 shows two different permutations of weight and the resulting linear models.

As you can see, sometimes the slope of the permuted data is positive, sometimes it is negative. Because the randomization happens under the condition of no underlying relationship (because the response variable is completely mixed with the explanatory variable), we expect to see the center of the randomized slope distribution to be zero.

18.2.3 Observed statistic vs. null statistics

As we can see from Figure 18.10, a slope estimate as extreme as the observed slope estimate (the red line) never happened in many repeated permutations of the weight variable. That is, if indeed there were no linear relationship between weight and weeks, the natural variability of the slopes would produce estimates between approximately -0.15 and +0.15. We reject the null hypothesis. Therefore, we believe that the slope observed on the original data is not just due to natural variability and indeed, there is a linear relationship between weight of baby and weeks gestation for births in the US.

18.3.1 Observed data

Returning to the births data, we may want to consider the relationship between mage (mother’s age) and weight. Is mage a good predictor of weight? And if so, what is the relationship? That is, what is the slope that models average weight of baby as a function of mage (mother’s age)? The linear model regressing weight on mage is provided in Table 18.2.

18.3.2 Variability of the statistic

Because the focused is not on a null distribution, sample with replacement \(n=100\) observations from the original dataset. Recall that with bootstrapping the resample always has the same number of observations as the original dataset in order to mimic the process of taking a sample from the population. When sampling in the linear model case, consider each observation to be a single dot. If the dot is resampled, both the weight and the mage measurement are observed. The measurements are linked to the dot (i.e., to the birth in the sample).

Figure 18.12 shows the original data as compared with a single bootstrap sample, resulting in (slightly) different linear models. The red circles represent points in the original data which were not included in the bootstrap sample. The blue circles represents a point that was repeatedly resampled (and is therefore darker) in the bootstrap sample. The green circles represents a particular structure to the data which is observed in both the original and bootstrap samples. By repeatedly resampling, we can see dozens of bootstrapped slopes on the same plot in Figure 18.13.

Recall that in order to create a confidence interval for the slope, we need to find the range of values that the statistic (here the slope) takes on from different bootstrap samples. Figure 18.14 is a histogram of the relevant bootstrapped slopes. We can see that a 95% bootstrap percentile interval for the true population slope is given by (-0.01, 0.081). We are 95% confident that for the model describing the population of births, described by mother’s age and weight of baby, a one unit increase in mage (in years) will be associated with an increase in predicted average baby weight of between -0.01 and 0.081 pounds (notice that the CI overlaps zero!).

18.4.1 Observed data

Midterm elections and unemployment

Elections for members of the United States House of Representatives occur every two years, coinciding every four years with the U.S. Presidential election. The set of House elections occurring during the middle of a Presidential term are called midterm elections. In America’s two-party system (the vast majority of House members through history have been either Republicans or Democrats), one political theory suggests the higher the unemployment rate, the worse the President’s party will do in the midterm elections. In 2020 there were 232 Democrats, 198 Republicans, and 1 Libertarian in the House.

To assess the validity of this claim, we can compile historical data and look for a connection. We consider every midterm election from 1898 to 2018, with the exception of those elections during the Great Depression. The House of Representatives is made up of 435 voting members.

Figure 18.15 shows these data and the least-squares regression line:

\[ \begin{aligned} &\texttt{percent change in House seats for President's party} \\ &\qquad\qquad= -7.36 - 0.89 \times \texttt{(unemployment rate)} \end{aligned} \]

We consider the percent change in the number of seats of the President’s party (e.g., percent change in the number of seats for Republicans in 2018) against the unemployment rate.

Examining the data, there are no clear deviations from linearity or substantial outliers (see Section 5.1.3 for a discussion on using residuals to visualize how well a linear model fits the data). While the data are collected sequentially, a separate analysis was used to check for any apparent correlation between successive observations; no such correlation was found.

There is a negative slope in the line shown in Figure 18.15. However, this slope (and the y-intercept) are only estimates of the parameter values. We might wonder, is this convincing evidence that the “true” linear model has a negative slope? That is, do the data provide strong evidence that the political theory is accurate, where the unemployment rate is a useful predictor of the midterm election? We can frame this investigation into a statistical hypothesis test:

• \(H_0\): \(\beta_1 = 0\). The true linear model has slope zero.
• \(H_A\): \(\beta_1 \neq 0\). The true linear model has a slope different than zero. The unemployment is predictive of whether the President’s party wins or loses seats in the House of Representatives.

We would reject \(H_0\) in favor of \(H_A\) if the data provide strong evidence that the true slope parameter is different than zero. To assess the hypotheses, we identify a standard error for the estimate, compute an appropriate test statistic, and identify the p-value.

18.4.2 Variability of the statistic

Just like other point estimates we have seen before, we can compute a standard error and test statistic for \(b_1\). We will generally label the test statistic using a \(T\), since it follows the \(t\)-distribution.

We will rely on statistical software to compute the standard error and leave the explanation of how this standard error is determined to a second or third statistics course. Table 18.3 shows software output for the least squares regression line in Figure 18.15. The row labeled unemp includes all relevant information about the slope estimate (i.e., the coefficient of the unemployment variable).

We previously used a \(t\)-test statistic for hypothesis testing in the context of numerical data. Regression is very similar. In the hypotheses we consider, the null value for the slope is 0, so we can compute the test statistic using the T score formula:

\[ T \ = \ \frac{\text{estimate} - \text{null value}}{\text{SE}} = \ \frac{-0.89 - 0}{0.835} = \ -1.07 \]

This corresponds to the third column of Table 18.3 .

18.4.3 Observed statistic vs. null statistics

As the final step in a mathematical hypothesis test for the slope, we use the information provided to make a conclusion about whether or not the data could have come from a population where the true slope was zero (i.e., \(\beta_1 = 0\)). Before evaluating the formal hypothesis claim, sometimes it is important to check your intuition. Based on everything we’ve seen in the examples above describing the variability of a line from sample to sample, ask yourself if the linear relationship given by the data could have come from a population in which the slope was truly zero.

The tools in this section help you go beyond a visual interpretation of the linear relationship toward a formal mathematical claim about whether the slope estimate is meaningfully different from 0 to suggest that the true population slope is different from 0.

18.5.1 Observed data

Similar to how we can conduct a hypothesis test for a model coefficient using regression output, we can also construct a confidence interval for that coefficient.

18.5.2 Variability of the statistic

On the topic of intervals in this book, we’ve focused exclusively on confidence intervals for model parameters. However, there are other types of intervals that may be of interest, including prediction intervals for a response value and also confidence intervals for a mean response value in the context of regression.

18.6.1 What are the technical conditions for the mathematical model?

When fitting a least squares line, we generally require

• Linearity. The data should show a linear trend. If there is a nonlinear trend (e.g., first panel of Figure 18.16) an advanced regression method from another book or later course should be applied.

• Independent observations. Be cautious about applying regression to data, which are sequential observations in time such as a stock price each day. Such data may have an underlying structure that should be considered in a model and analysis. An example of a dataset where successive observations are not independent is shown in the fourth panel of Figure 18.16.

• Nearly normal residuals. Generally, the residuals must be nearly normal. When this condition is found to be unreasonable, it is usually because of outliers or concerns about influential points, which we’ll talk about more in Section 5.3. An example of a residual that would be a potentially concern is shown in the second panel of Figure 18.16, where one observation is clearly much further from the regression line than the others.

• Constant or equal variability. The variability of points around the least squares line remains roughly constant. An example of non-constant variability is shown in the third panel of Figure 18.16, which represents the most common pattern observed when this condition fails: the variability of \(y\) is larger when \(x\) is larger.

The technical conditions are often remembered using the LINE mnemonic. The linearity, normality, and equality of variance conditions usually can be assessed through residual plots, as seen in Figure 18.16. A careful consideration of the experimental design should be undertaken to confirm that the observed values are indeed independent.

• L: linear model
• I: independent observations
• N: points are normally distributed around the line
• E: equal variability around the line for all values of the explanatory variable

18.6.2 Why do we need technical conditions?

As with other inferential techniques we have covered in this text, if the technical conditions above don’t hold, then it is not possible to make concluding claims about the population. That is, without the technical conditions, the T score (or Z score) will not have the assumed t-distribution (or standard normal \(z\)-distribution). That said, it is almost always impossible to check the conditions precisely, so we look for large deviations from the conditions. If there are large deviations, we will be unable to trust the calculated p-value or the endpoints of the resulting confidence interval.

The model based on Linearity

The linearity condition is among the most important if your goal is to understand a linear model between \(x\) and \(y\). For example, the value of the slope will not be at all meaningful if the true relationship between \(x\) and \(y\) is quadratic, as in Figure 5.3. Not only should we be cautious about the inference, but the model itself is also not an accurate portrayal of the relationship between the variables.

Sometimes it may be possible to transform either the explanatory or response variable such that the relationship between the transformed variables is fit well by a line. However, an extended discussion on the different methods for modeling functional forms other than linear is outside the scope of this text.

The importance of Independence

The technical condition describing the independence of the observations is often the most crucial but also the most difficult to diagnose. It is also extremely difficult to gather a dataset which is a true random sample from the population of interest. (Note: a true randomized experiment from a fixed set of individuals is much easier to implement, and indeed, randomized experiments are done in most medical studies these days.)

Dependent observations can bias results in ways that produce fundamentally flawed analyses. That is, if you hang out at the gym measuring height and weight, your linear model is surely not a representation of all students at your university. At best it is a model describing students who use the gym (but also who are willing to talk to you, that use the gym at the times you were there measuring, etc.).

In lieu of trying to answer whether or not your observations are a true random sample, you might instead focus on whether or not you believe your observations are representative of the populations. Humans are notoriously bad at implementing random procedures, so you should be wary of any process that used human intuition to balance the data with respect to, for example, the demographics of the individuals in the sample.

Some thoughts on Normality

The normality condition requires that points vary symmetrically around the line, spreading out in a bell-shaped fashion. You should consider the “bell” of the normal distribution as sitting on top of the line (coming off the paper in a 3-D sense) so as to indicate that the points are dense close to the line and disperse gradually as they get farther from the line.

The normality condition is less important than linearity or independence for a few reasons. First, the linear model fit with least squares will still be an unbiased estimate of the true population model. However, the standard errors associated with variability of the line will not be well estimated. Fortunately the Central Limit Theorem tells us that most of the analyses (e.g., SEs, p-values, confidence intervals) done using the mathematical model will still hold (even if the data are not normally distributed around the line) as long as the sample size is large enough. One analysis method that does require normality, regardless of sample size, is creating intervals which predict the response of individual outcomes at a given \(x\) value, using the linear model. One additional reason to worry slightly less about normality is that neither the randomization test nor the bootstrapping procedures require the data to be normal around the line.

Equal variability for prediction in particular

As with normality, the equal variability condition (that points are spread out in similar ways around the line for all values of \(x\)) will not cause problems for the estimate of the linear model. That said, the inference on the model (e.g., computing p-values) will be incorrect if the variability around the line is heterogeneous. Data that exhibit non-equal variance across the range of x-values will have the potential to seriously mis-estimate the variability of the slope which will have consequences for the inference results (i.e., hypothesis tests and confidence intervals).

The inference results for both a randomization test or a bootstrap confidence interval are robust to the equal variability condition, so they give the analyst methods to use when the data are heteroskedastic (that is, exhibit unequal variability around the regression line). Although randomization tests and bootstrapping allow us to analyze data using fewer conditions, some technical conditions are required for all methods described in this text (e.g., independent observation). When the equal variability condition is violated and a mathematical analysis (e.g., p-value from T score) is needed, there are other existing methods (outside the scope of this text) which can easily handle the unequal variance (e.g., weighted least squares analysis).

18.6.3 What if all the technical conditions are met?

When the technical conditions are met, the least squares regression model and inference is provided by virtually all statistical software. In addition to being ubiquitous, however, an additional advantage to the least squares regression model (and related inference) is that the linear model has important extensions (which are not trivial to implement with bootstrapping and randomization tests). In particular, random effects models, repeated measures, and interaction are all linear model extensions which require the above technical conditions. When the technical conditions hold, the extensions to the linear model can provide important insight into the data and research question at hand. Many of the techniques used to deal with technical condition violations are outside the scope of this text, but they are taught in universities in the very next class after this one. If you are working with linear models or curious to learn more, we recommend that you continue learning about statistical methods applicable to a larger class of datasets.

18.7.1 Summary

Recall that early in the text we presented graphical techniques which communicated relationships across multiple variables. We also used modeling to formalize the relationships. Many chapters were dedicated to inferential methods which allowed claims about the population to be made based on samples of data. Not only did we present the mathematical model for each of the inferential techniques, but when appropriate, we also presented bootstrapping and permutation methods.

Here in Chapter 18 we brought all of those ideas together by considering inferential claims on linear models through randomization tests, bootstrapping, and mathematical modeling. We continue to emphasize the importance of experimental design in making conclusions about research claims. In particular, recall that variability can come from different sources (e.g., random sampling vs. random allocation, see Figure 2.6).

18.7.2 Terms

We introduced the following terms in the chapter. If you’re not sure what some of these terms mean, we recommend you go back in the text and review their definitions. We are purposefully presenting them in alphabetical order, instead of in order of appearance, so they will be a little more challenging to locate. However you should be able to easily spot them as bolded text.