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February 11, 2021

You might be tempted to use the correlation to reduce the set of predictors, but as Charles Dickens shows us, this requires domain knowledge

Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. – Mr Micawber, in David Copperfield

Even though income and expenditure are highly correlated, neither one separately will do anywhere near as well as the pair in predicting who ends up happy and who ends up in debtor’s prison. — Co-linearity