Homoscedasticity and Heteroscedasticity

 

The Assignment

Discuss the differences between Homoscedasticity and Heteroscedasticity.

Respond to at least two of your classmates’ postings.

Tips & Hints for Success

0)  Definitions are merely the starting point for this discussion and taken as a given.  Your discussion of definitions may be helpful to telling your story in words, but cannot earn credit as a response to the assignment.

1)  “Discuss the differences between Homoscedasticity and Heteroscedasticity.”  (Don’t let the words intimidate you: the underlying concepts are really very simple)  You must do this in an easy to understand manner, using the terminology of statistics or econometrics.  (Do NOT define these terms- that is not the assignment.  The goal here is to ensure that you understand what these terms mean.) 

2)  Examples of homoscedasticity and heteroscedasticity will make it clear that you understand the concept.  (For instance, imagine that your independent variable was the height of basketball players or the size of pigeons or something of that sort; what might your dependent variables be and how would the distribution of that dependent variable differ if its distribution was homoscedastic rather than heteroscedastic?  This is really much easier than it might at first sound.)

3)  Description of why it is important to understand whether the distribution is homoscedastic or heteroscedastic will demonstrate how those differences are relevant to econometrics,  (In other words, why are we making such a fuss about these awkward words?!)  It is not sufficient to just say something like “homoscedasticity allows us to make better predictions” — you need to explain why this might (or might not!) be true.

4)  Respond to your classmates.

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