The number of dummy variables representing a qualitative variable should be:
A)one less than the number of categories of the variable.
B)two less than the number of categories of the variable.
C)the same number as the number of categories of the variable.
D)None of the above.

Question

Quizplus · Accepted Answer

The number of dummy variables representing a qualitative variable should be one less than the number of categories of the variable. This is because the dummy variable coding scheme requires one less than the total number of categories to avoid perfect multicollinearity in the regression model. For example, if we have a variable with four categories (e.g. red, blue, green, and yellow), we would create three dummy variables (e.g. red, blue, and green) since having all four would result in perfect multicollinearity.

The Number of Dummy Variables Representing a Qualitative Variable Should