F I L E P ro fe sso r O rle y A s h e n fe lte r o f P rin c e to n U n iv e rs ity is a p io n e e r in th e fie ld o f w in e e c o n o m ic s . H e c la im s th a t, c o n tr a r y to o ld o rth o d o x y , th e q u a lity o f w in e can b e e x p la in e d m o s tly in te rm s o f w e a th e r c o n d itio n s . W in e ro m a n tic s accuse h im o f u n d e rm in in g th e w h o le w in e -

ta s tin g c u ltu re . In an in te re s tin g c o -a u th o re d p a p e r th a t a p p e a re d in Chance m a g a z in e in 1995, he ra n a m u ltip le re g re s s io n m o d e l w h e re q u a lity , m e a s u re d b y th e p rice s t h a t w in e s fe tc h a t a u c tio n s , is used as th e re s p o n s e v a ria b le y . T h e e x p la n a to ry v a ria b le s u sed in th e a n a ly s is w e re th e a v e ra g e te m p e ra tu re in C elsius x 1, th e a m o u n t o f w in te r ra in x 2/ th e a m o u n t o f h a rv e s t ra in x 3, a n d th e ye ars s in c e v in ta g e x 4. A p o r tio n o f th e d a ta is s h o w n in th e a c c o m p a n y in g ta b le ;

th e c o m p le te d a ta , la b e le d W ine Pricing, is a v a ila b le o n th e te x t w e b s ite .

Price Temperature Winter Rain Harvest Rain Vintage 1.4448 17.12 600 160 31 1.8870 16.73 690 80 30 1.1457 16.00 578 74 3 Source: h ttp ://w w w .liq u id a s s e t.c o m .

a. Use th e a b o v e d a ta to e s tim a te a lin e a r m o d e l, y = β 0 +
β 1 x 1 + β 2 x 2 + β3 x 3 + β4 x 4 +

e. W h a t is th e p re d ic te d p ric e i f x 1 = 1 6 , x 2 = 6 0 0 , x 3 = 1 20 , a n d x 4 = 20?

b. Use th e a b o v e d a ta to e s tim a te an e x p o n e n tia l m o d e l, ln (y ) = β0 + β 1 x 1 + β 2 x 2 + β3 x 3 + β4 x4 + ε . W h a t is th e p re d ic te d p ric e i f x 1 = 1 6 , x 2 = 6 0 0 , x 3 = 120, a n d x 4 = 2 0 ?

c. Use R2 to s e le c t th e a p p r o p r ia te m o d e l fo r p re d ic tio n .