Determine which of the following statements describe the advantages of using an alternative fitting procedure, such as subset selection and shrinkage, instead of least squares.

• Doing so will likely result in a simpler model
• Doing so will likely improve prediction accuracy
• The results are likely to be easier to interpret

• I only
• II only
• III only
• I, II, and III
• The correct answer is not given by (A), (B), (C), or (D)

Copyright 2023. The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.

Key: D

Alternative fitting procedures will tend to remove the irrelevant variables from the predictors, thus resulting in a simpler and easier to interpret model. Accuracy will likely be improved due to reduction in variance.

Copyright 2023. The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.