Can We do Better than R-squared?

Tom Hopper

If you’re anything like me, you’ve used Excel to plot data, then used the built-in ?add fitted line? feature to overlay a fitted line to show the trend, and displayed the ?goodness of fit,? the r-squared (R2) value, on the chart by checking the provided box in the chart dialog.

The R2 calculated in Excel is often used as a measure of how well a model explains a response variable, so that ?R2 = 0.8? is interpreted as ?80% of the variation in the ‘y’ variable is explained by my model.? I think that the ease with which the R2 value can be calculated and added to a plot is one of the reasons for its popularity.

There’s a hidden trap, though. R2 will increase as you add terms to a model, even if those terms offer no real explanatory power. By…

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