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May 26'23
Exercise
Determine which of the following statements describe the advantages of using an alternative fitting procedure, such as subset selection and shrinkage, instead of least squares.
- Doing so will likely result in a simpler model
- Doing so will likely improve prediction accuracy
- The results are likely to be easier to interpret
- I only
- II only
- III only
- I, II, and III
- The correct answer is not given by (A), (B), (C), or (D)
Copyright 2023. The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
May 26'23
Key: D
Alternative fitting procedures will tend to remove the irrelevant variables from the predictors, thus resulting in a simpler and easier to interpret model. Accuracy will likely be improved due to reduction in variance.
Copyright 2023. The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.