Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 12

Explain what a dummy variable is and how it is used in regression analysis.

Step 1 of 4

Dummy variable

It is that variable which is used to represent the absent or presence of a condition. In other words we can say that it is numerical variable which is used in the regression analysis to represent the subgroup of the sample. A dummy variable is that which is considered only one value either 0 or 1 which shows absence or presence of the effect. It clearly indicates the position yes or no, it means it is clear cut and also there is no doubt in the decision making process as it works on the concept of positive or negative that is either we go with the concept or not.