Sparse Modeling of Categorial Explanatory Variables

Shrinking methods in regression analysis are usually designed for metric predictors. In this article, however, shrinkage methods for categorial predictors are proposed. As an application we consider data from the Munich rent standard, where, for example, urban districts are treated as a categorial predictor. If independent variables are categorial, some modifications to usual shrinking procedures are necessary. Two L1-penalty based methods for...