Case Detail

Case Summary

Practical Regression: From "Stylized Facts" to Benchmarking

Case Number: 7-112-011, Year Published: 2012

HBS Number: KEL645

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Authors: David Dranove

Key Concepts

Economics, Market Research, Statistical Methods

Abstract

This is the eleventh in a series of lecture notes which, if tied together into a textbook, might be entitled “Practical Regression.” The purpose of the notes is to supplement the theoretical content of most statistics texts with practical advice based on nearly three decades of experience of the author, combined with over one hundred years of experience of colleagues who have offered guidance. As the title “Practical Regression” suggests, these notes are a guide to performing regression in practice.
Using an extended example on hospital lengths of stay, the note explains how to "deconstruct" a regression in order to parse out how each variable contributes to the overall result. Regression is viewed as an exercise in "benchmarking"—explaining why some observations in the data "outperform" or "underperform" others. The residual is viewed as a potential measure of managerial effectiveness, albeit one that must be treated with caution. The note provides step-by-step instructions for using regression for benchmarking.

Learning Objectives

Students will learn the following:
- How to parse out regression results in order to identify how each right hand side variable contributes to regression predictions
- How to use regression to "benchmark" the relative performance of each observation
- Creating a "deficiency table" to break down differences in the dependent variables in raw data into components explained by regression
- Using regression to perform a benchmarking study

Number of Pages: 8

Extended Case Information

Teaching Areas: Finance