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Your dependent variable data is a proportion. The observed range of your data is 0.01 to 0.99. The instrument used to generate the dependent variable data is known to generate low quality data for values close to 0 and close to 1. A colleague suggests performing a logit-transformation on the data prior to performing a linear regression. Which of the following is a concern with this approach? Definition of logit-transformation If p is the proportion: logit(p)=log(p/(l-p))
Correct Answer: B
Explanation Logit-transformation is a common way to transform proportion data into a continuous variable that can be used for linear regression. However, one concern with this approach is that noisy data could become more influential in your model. This is because logit-transformation tends to amplify the values close to 0 and 1, which are also the values that are likely to be affected by measurement errors or outliers. This could distort the relationship between the dependent and independent variables and bias the regression coefficients. References: [Logit Transformation | Real Statistics Using Excel], [Logit transformation for proportions - Cross Validated]
