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Outlier vs Leverage vs Influence

You fit sales ~ ad_spend on 50 stores. Ad spend ranges from $5k to $40k for 49 stores; one flagship store spends $180k. Two other rows look odd:

  • Store A: ad spend $22k, sales far above the fitted line (studentised residual 3.4).
  • Store B (the flagship): ad spend $180k, sales sitting almost exactly on the fitted line (studentised residual 0.2).

Cook's distance is 0.09 for Store A and 1.8 for Store B.

  1. Classify each store as outlier, high-leverage, influential, or some combination, and justify using the numbers.
  2. Store B lies on the line and has a tiny residual. Why is its Cook's distance the largest in the dataset, and what would happen to the slope and its standard error if you removed it?
  3. Your stakeholder says "delete both, they're outliers." Give a defensible course of action for each store.

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