Statistical Significance

Imagine you are doing a coin toss. You assume that the coin is a fair coin which has two sides: a picture and a number. When you do the first toss, what appears is the picture. In this stage you feel everything is normal. The probability for the number side and the picture side are same: 0.5.

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Dummy Variable Trap in Regression

Assume we have variable of sex: female and male. If in the analysis we use two dummy variable, let’s say female is represented by f and male represented by m, there will be a problem of multicollinearity (one value can be predicted from the other values). This is caused by the fact that the the row of f and m in the matrix is highly correlated: The i-th row in the f is correlated with the i-th row in the m. For example: if i-th row in f is 0, so the i-th is 1, vice versa. Thus, the determinant will be 0.

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