ANALYTICS REPORT

TO: JOHN MCCLINTOCK

FROM: ETHAN MEADE

SUBJECT: CHAPTER 7

DATE: 26 NOVEMBER 2019

Introduction
In this lab, I ran two regression outputs in order to predict Taiwanese card holder’s credit
limits as well as their chances of defaulting on the next month’s payment. I used age,
education, marital status, gender and age*marriage to predict credit limit. I used age,
average bill amount and average previous payment amount to predict chance of
defaulting.

Data Analysis

Regression Equation
^
Credit Limit=−392.67+117.96 ( Age ) +3457 .16 ( d Graduate School ) +2980 .05 ( d Married )−67.09 ( d Married∗Age )−366.34

For the first model, I predicted credit limits. The model was 11.86% of the way towards
perfectly predicting credit limit. On average, predicted credit limit was off by $4027.68.
Each variable’s p-value was much lower than .05, so this is the best model since it
includes all of them.

Coefficient Interpretations
If a person had a graduate school education level, their credit limit was $3457.16 greater
than high school graduates, and $2321.75 greater than university graduates, on average
and all else constant.
University graduates had credit limits $1135.41 higher than high school graduates, on
average and all else constant.
If a person was married, their credit limit was $2980.05 higher than single people at year
0, but each year it increases by $67.09 less than a single person, on average and all else
constant.
Single people’s credit limits increased by $117.96 each year, on average and all else
constant.
Married people’s credit limits increased by $50.87 each year, on average and all else
constant.
Males had credit limits $366.34 lower than females on average and all else constant.

Prediction
Based on the model, a 30-year-old married female with a university degree would be
expected to have a credit limit of $5248.89, on average and all else constant.

Regression Equation
^
Chance of Defaulting=0.2+6.88 e−6 ( Average Bill )−0.00017 ( Average Previous Payment ) +0.001( Age)

For this model, I predicted chance of defaulting on next month’s bill. On average, chance
of defaulting was off by 41.2 percentage points. Each variable’s p-value was lower than .
05, so this is the best model.

2
Coefficient Interpretations
As average bill went up by $100, chance of defaulting went up by 0.069 percentage
points, on average and all else constant.
As average previous payment went up by $100, chance of defaulting went down by 0.017
percentage points, on average and all else constant.
As age went up by 1 year, chance of defaulting increased by 0.1 percentage points, on
average and all else constant.

Prediction
According to the model, a 45-year-old with an average bill of $1200 and average
payments of $800 would have a 19.3% chance of defaulting on their next bill, on average
and all else constant.

Conclusion
I would not recommend trusting either of these models, since neither one is particularly
close to perfectly predicting what they are trying to predict. That being the case, I still
found some interesting trends that could be very useful to the company. These included
the finding that men had a lower average credit limit than women, that married people
have a higher average starting limit but that single people’s limits increase at a faster rate,
and that average credit limit increases with education level.