Thread: Linear Regression Equation - error term

Regarding the linear regression equation of the form:

y = b0 + b1x + E

Where E = the error term Epsilon.

When using this equation to predict values for y, do I need to leave the error term in the equation? (I mean suppose E = 10, do I need to add 10 to my value of y)? Also if I do need to leave it in, shouldn't it be +/- E? The equation seems to indicate it's just + or - E but since it's unaccounted for variation I would have thought + and - would be more appropriate?

Thanks
Rob

Hi, Rob.

I'd say the answer depends on the problem at hand, and the context in which the problem appears. Given a value of x, sometimes it suffices to predict the corresponding value of y to be b0+b1x and then leave it at that. If you want to be more specific, you could include the margin of error in your answer, which I agree should be +/-E, as far as E is a positive error term.

no the point estimator is b0+b1x for each value of x.
NOW if you want a confidence or prediction interval, then you need to use the APPROPRIATE st deviation and percentile