How to minimize or overcome the effects of multicollinearity?
Method 1
• Use stepwise regression: In the estimation use stepwise and then forward procedure.
• See where the negative coefficient appears. This happens at step 4. So you stop at stop 3 before the model is contaminated.
• But this has drawbacks. You are using only three of 11 variables. The information from eight variables is excluded.
Method 2
The other solution is to use Constructs (not raw variables) as independent variables. For example, x15, x18, x20 relate to food quality. So create a construct called food quality.
Use procedure Correlation to determine variables that are highly related.
How to develop a construct called food quality?
Use the following sequence in MYSTAT: Data > Transform > LET (complete the expression)
Foodquality = (x15+x18+x20)/3.
This will create a new variable called Foodquality (no space between food and quality).
Similarly develop other constructs. For example variables 12, 19 and 21 refer to service quality. So create this construct. To identify constructs use procedure correlation and combine highly correlated variables.
Attachment:- assignment.rar