At times, adjusted R^2 is used instead of R^2 in order

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At times, adjusted R^2 is used instead of  R^2  in order

BlackTom AI · Accepted Answer

We begin by restating the question in our own words to frame the context: the topic concerns why adjusted R^2 might be used instead of the regular R^2 in regression analysis.
Option 1: To compensate for adding variables to a regression model. This is correct in general understanding because adjusted R^2 introduces a penalty for the number of predictors, helping to prevent overfitting by adjusting for model complexity. It increases only if the new variable improves the model more than would be expected by chance, and can decrease if a variable does not contribute enough.
Option 2: To determine the covariance. Covariance is a measure of how two variables vary together and is not related to the purpose of adjusted R^2. Therefore this choice confuses a different statistical concept with model-fit adjustment.
Option 3: When the mean is known not to be zero. The mean being zero is a data property relevant to certain estimations, but adjusted R^2 is not defined or motivated by whether the mean is zero; its adjustment concerns model complexity and explained variance, not a known mean value.
Option 4: to account for an unknown population variance. While variance considerations are part of regression theory, adjusted R^2 is not specifically designed to handle unknown population variance. It focuses on penalizing additional predictors rather than dealing with variance estimation directly.

In summary, the rationale for using adjusted R^2 centers on balancing model fit with model complexity, reducing the risk of overfitting when more predictors are included, which aligns with Option 1. The other options point to concepts (covariance, fixed mean, unknown variance) that do not capture the stated purpose of adjusted R^2.

ERMCPS5350_003_2025_3 - INTRO TO QUANTITATIVE RISK MANAGEMENT 11. Quiz for Class 11

At times, adjusted R^2 is used instead of R^2 in order

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