EXAMPLE 10.12

Graphical display of the income and education relationship. Figure 10.9 is a plot of income versus eduction for our sample of 100 entrepreneurs. We use the variable names INC and EDUC. The least-squares regression line and a smoothed curve are also included.

The most striking feature of the plot is not the lack of linearity (there is some suggested curvature between y and x), but rather the distribution of income about the least-squares line. Instead of incomes being Normally distributed, the observations are skewed to the right. That is, for each subpopulation, defined by years of education, there are many small incomes and just a few large incomes. In fact, there are several very large incomes that one might consider to be outliers.