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Discuss why error terms are included in the formulation of the model and what they possibly...

Discuss why error terms are included in the formulation of the model and what they possibly represent.

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The regression model is based on the sample values and the actual values vary from the sample values so The error term is included in the model to make the estimates of the model close to the actual values ie to exact the estimated values of Y in the regression model.

The regression model has two parts which is deterministic value and non-deterministic values. The error part of the regression equation deals with non-deterministic value. Some variables which are missing in the equation, its values are given by error terms and hence they represent the possible missing values in the equation.

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