Editing Categorical variable (section)

===Dummy coding===

Dummy coding is used when there is a [[Control group|control]] or comparison group in mind. One is therefore analyzing the data of one group in relation to the comparison group: ''a'' represents the mean of the control group and ''b'' is the difference between the mean of the [[experimental group]] and the mean of the control group. It is suggested that three criteria be met for specifying a suitable control group: the group should be a well-established group (e.g. should not be an "other" category), there should be a logical reason for selecting this group as a comparison (e.g. the group is anticipated to score highest on the dependent variable), and finally, the group's sample size should be substantive and not small compared to the other groups.<ref>{{cite book|last=Hardy|first=Melissa|title=Regression with dummy variables|year=1993|publisher=Sage|location=Newbury Park, CA}}</ref>

In dummy coding, the reference group is assigned a value of 0 for each code variable, the group of interest for comparison to the reference group is assigned a value of 1 for its specified code variable, while all other groups are assigned 0 for that particular code variable.<ref name = Cohen/>

The ''b'' values should be interpreted such that the experimental group is being compared against the control group. Therefore, yielding a negative b value would entail the experimental group have scored less than the control group on the [[dependent variable]]. To illustrate this, suppose that we are measuring optimism among several nationalities and we have decided that French people would serve as a useful control. If we are comparing them against Italians, and we observe a negative ''b'' value, this would suggest Italians obtain lower optimism scores on average.

The following table is an example of dummy coding with ''French'' as the control group and C1, C2, and C3 respectively being the codes for ''Italian'', ''German'', and ''Other'' (neither French nor Italian nor German):

{| class="wikitable"
|-
| '''Nationality''' || '''C1''' || '''C2''' || '''C3'''
|-
| French || 0 || 0 || 0
|-
| Italian || 1|| 0 || 0
|-
| German || 0 || 1 || 0
|-
| Other || 0 || 0 || 1
|}