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Suppose you have a residuals plot that shows a funnel shape for the residuals. Which assumption of linear regression is being violated?

Question

Suppose you have a residuals plot that shows a funnel shape for the residuals. Which assumption of linear regression is being violated?

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Solution

The funnel shape in a residuals plot indicates a violation of the assumption of homoscedasticity in linear regression. Homoscedasticity assumes that the variance of the errors is constant across all levels of the independent variables. When this assumption is violated, it is known as heteroscedasticity. The funnel shape indicates heteroscedasticity because the spread of the residuals increases or decreases as the value of the predicted outcome increases. This can lead to unreliable and inefficient estimates of the regression coefficients.

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