As we noted, because of the regression identity, we can express the coefficient of determination in terms of the total sum of squares and the error sum of squares as r2 = 1 − SSE/SST.
a. Explain why this formula shows that the coefficient of determination can also be interpreted as the percentage reduction obtained in the total squared error by using the regression equation instead of the mean, y-bar, to predict the observed values of the response variable.
b. Refer to Exercise 4.89. What percentage reduction is obtained in the total squared error by using the regression equation instead of the mean of the observed prices to predict the observed prices?