Classification methods and linear regression

So, why can't we just use the least squares regression method that we learned in the previous chapter for a qualitative outcome? Well, as it turns out, you can but at your own risk. Let's assume for a second that you have an outcome that you are trying to predict and it has three different classes: mild, moderate, and severe. You and your colleagues also assume that the difference between mild and moderate and moderate and severe is an equivalent measure and a linear relationship. You can create a dummy variable where zero is equal to mild, one is equal to moderate, and two is equal to severe. If you have reason to believe this, then linear regression might be an acceptable solution. However, qualitative assessments such as the previous ones might lend themselves to a high level of measurement error that can bias the OLS. In most business problems, there is no scientifically acceptable way to convert a qualitative response to one that...