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Response modeling methodology (RMM) is a general platform for statistical modeling of a linear/nonlinear relationship between a response variable (dependent variable) and a linear predictor (a linear combination of predictors/effects/factors/independent variables), often denoted the linear predictor function. It is generally assumed that the modeled relationship is monotone convex (delivering monotone convex function) or monotone concave (delivering monotone concave function). However, many non-monotone functions, like the quadratic equation, are special cases of the general model.
RMM was initially developed as a series of extensions to the original inverse Box–Cox transformation: y = ( 1 + λ z ) 1 / λ , {\displaystyle y={{(1+\lambda z)}^{1/\lambda }},} where y is a percentile of the modeled response, Y (the modeled random variable), z is the respective percentile of a normal variate and λ is the Box–Cox parameter. As λ goes to zero, the inverse Box–Cox transformation becomes: y = e z , {\displaystyle y=e^{z},} an exponential model. Therefore, the original inverse Box-Cox transformation contains a trio of models: linear (λ = 1), power (λ ≠ 1, λ ≠ 0) and exponential (λ = 0). This implies that on estimating λ, using sample data, the final model is not determined in advance (prior to estimation) but rather as a result of estimating. In other words, data alone determine the final model.
Extensions to the inverse Box–Cox transformation were developed by Shore (2001a) and were denoted Inverse Normalizing Transformations (INTs). They had been applied to model monotone convex relationships in various engineering areas, mostly to model physical properties of chemical compounds (Shore et al., 2001a, and references therein). Once it had been realized that INT models may be perceived as special cases of a much broader general approach for modeling non-linear monotone convex relationships, the new Response Modeling Methodology had been initiated and developed (Shore, 2005a, 2011 and references therein).
The RMM model expresses the relationship between a response, Y (the modeled random variable), and two components that deliver variation to Y:
The linear predictor function, LP (denoted η): η = β 0 + β 1 X 1 + ⋯ + β k X k , {\displaystyle \eta =\beta _{0}+\beta _{1}X_{1}+\cdots +\beta _{k}X_{k},} where referenceTurn Your Knowledge into Earnings.
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