Society of Actuaries (SOA) PA Practice Exam

When building a GLM, why is it important to understand predictors and their coefficients?

1. To determine the minimum number of predictors

2. To evaluate predictors' importance and contribution

3. To enhance the complexity of the model

4. To visualize the data in a graph

The correct answer is: To evaluate predictors' importance and contribution

Understanding predictors and their coefficients is crucial in the context of Generalized Linear Models (GLMs) because it allows for the evaluation of each predictor's importance and its contribution to the model's output. Each coefficient provides insight into the relationship between the predictor and the response variable, indicating how changes in the predictor are expected to affect the response. By assessing the magnitude and direction of these coefficients, you can identify which predictors are the most significant and how they influence the dependent variable. This evaluation is essential for model interpretation, as it helps determine which factors are driving the outcomes and informs decisions about which predictors to retain or exclude when refining the model. Understanding predictors and their associated coefficients ultimately enables more effective modeling and better prediction accuracy, as well as insights into the underlying phenomena being studied.