A Realtor Wants to Predict and Compare the Prices of Homes

question 28

Essay

A realtor wants to predict and compare the prices of homes in three neighboring locations. She considers the following linear models:
Model A: Price = β₀ + β₁ Size + β₂ Age + ε
Model B: Price = β₀ + β₁ Size + β₃ Loc1 + β₄ Loc2 + ε
Model C: Price = β₀ + β₁ Size + β₂ Age + β₃ Loc1 + β₄ Loc2 + ε
where,
Price = the price of a home (in $1,000s)
Size = the square footage (in sq. feet)
Loc1 = a dummy variable taking on 1 for Location 1, and 0 otherwise
Loc2 = a dummy variable taking on 1 for Location 2, and 0 otherwise
After collecting data on 52 sales and applying regression, her findings were summarized in the following table. Note: The values of relevant test statistics are shown in parentheses below the estimated coefficients.
Suppose that at the 10% significance level, you do not reject the null hypothesis, H₀: β₂ = 0, when testing the significance of Age in Model C. Would you delete Age from Model C?

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Definitions:

Aggressive Personality

Behaviors and attitudes associated with the neurotic trend of moving against people, such as a domineering and controlling manner.

Horney

Karen Horney, a psychoanalyst known for her theories on neurosis, personal growth, and the concept of the "real self."

Neurotic Trends

Patterns of thought, behavior, and emotional response that are significantly maladaptive, causing significant distress or impairment in functioning.

Horney

Refers to Karen Horney, a psychoanalyst known for her theories on neurosis, personality, and the importance of social and cultural factors in the development of psychology.