You have begun work at an online computer games company and have been invited to
a presentation by the marketing department as they have heard you have an interest in
econometrics. A member of the marketing team notes that they have recently run a
regression of revenue (labelled as ”revenue”) from the most popular title on the amount
paid to companies that produce targeted advertisements on social media for the company
(labelled as ”advert” below).
The marketing department is slightly surprised by this as the adverts considered are actually focused on new games, which have not been selling very well due to some high profile
errors.
As part of the presentation the marketing team show some graphs of the data they have,
which looks like this:
The output from what they describe as a ”complex statistical package called R”, which
they also included on a slide in their presentation is as below.
Call:
lm(formula = revenue ~ advert)
7 of 13
ECON20110/30370
Residuals:
Min 1Q Median 3Q Max
-23.4065 -7.2912 0.0293 5.8535 30.5477
Coefficients:
Estimate Std. Error t value Pr(>|t|)
(Intercept) -20.9128 5.6498 -3.701 0.000238 ***
advert 1.2701 0.1095 11.596 < 2e-16 ***
---
Signif. codes: 0 *** 0.001 ** 0.01 * 0.05 . 0.1 1
Residual standard error: 10.06 on 498 degrees of freedom
Multiple R-squared: 0.2126,Adjusted R-squared: 0.211
F-statistic: 134.5 on 1 and 498 DF, p-value: < 2.2e-16
The marketing team have decided that based on this data they are planning to massively
increase their spending on social media advertising and cut back on other promotions
work, including advertising which focuses on the best selling game, noting that it feels
odd but they are following the data which is telling them to take this approach.
The marketing department have asked you if there is anything more they should think
about before they go ahead and spend the money and have asked you to put your thoughts
in an email to them before they take their findings to the company directors.
Draft an email to the marketing department, making it clear whether you think their
findings and methodology are robust and making clear any further action you think they
should take.
[25 MAR