Solved – Model percentiles without quantile regression

interactionquantile regressionquantilesregression

I have 5 variables predicting a total price for selling an item. I also want to be able to include interaction terms in the model. However, I want to sell the item at the 75th percentile in order to ensure my price is competitive.

I am under the impression that a regular simple linear regression model predicts the 100th percentile. How can I predict difference percentiles without using quantile regression? QR does not allow for interaction terms, and I need them in my model. Any help? I am using R if there's any advice for that program.

Best Answer

Linear regression does not predict the 100th percentile. Linear regression is more akin to predicting a mean, which doesn't translate into "percentiles".

And I just played around with the rq() function in R (in the quantreg package). It does indeed allow you to use interaction effects. Try something like:

m <- rq(y ~ x1 + x2 + x1:x2, tau = 0.75)