Pricing the C's of Diamond Stones

Many statistical problems can be satisfactorily resolved within the framework of linear regression. Business students, for example, employ linear regression to uncover interesting insights in the fields of Finance, Marketing, and Human Resources, among others. The purpose of this paper is to demonstrate how several concepts arising in a typical discussion of multiple linear regression can be motivated through the development of a pricing model for diamond stones. Specifically, we use data pertaining to 308 stones listed in an advertisement to construct a model, which educates us on the relative pricing of caratage and the different grades of clarity and colour.