Society of Actuaries (SOA) PA Practice Exam

In which scenario would you look for outliers in your data analysis?

1. During univariate analysis of continuous predictor variables

2. When evaluating bivariate relationships

3. Only when conducting histograms

4. During factor variable analysis

The correct answer is: During univariate analysis of continuous predictor variables

Identifying outliers is an important step in data analysis, particularly during univariate analysis of continuous predictor variables. In this scenario, you are examining a single variable's distribution, and assessing for outliers helps ensure that the analysis accurately reflects the data's behavior. Outliers can distort statistical measures such as the mean and standard deviation, which can lead to misleading conclusions. Thus, finding outliers in this context allows analysts to decide whether further investigation, including potential data cleaning or transformation, is necessary. When examining bivariate relationships, outliers may also be relevant since they can impact the correlation and regression analyses, but the primary focus of outlier detection typically occurs during the univariate analysis phase. In the context of conducting histograms, while this method can help visualize the distribution and possibly identify outliers, the structured approach of looking for them in univariate analysis is more crucial. Lastly, during factor variable analysis, outliers might not be as directly impactful since the analysis generally focuses on categorical data rather than the quantitative aspects of continuous variables. Hence, univariate analysis remains the most suitable context for systematically identifying outliers.