Regression analysis with dummy variables

Abstract

Up to this point, we have implicitly assumed that all of the variables in our regression models are continuous. However, sometimes we are interested in using independent variables that are categorical rather than continuous. A categorical variable is one that consists of a series of categories that are both exhaustive and mutually exclusive such that each observation is assigned to one and no more than one category. There are many variables in social science research, such as gender, ethnicity, and marital status, that are inherently categorical. It turns out that categorical variables can be used as independent variables in regression analysis without much difficulty. Indeed, regression analysis with categorical independent variables provides results that are identical with those obtained from a statistical technique known as analysis of variance.