A Caution Regarding Rules of Thumb for Variance Inflation Factors

Abstract

The Variance Inflation Factor (VIF) and tolerance are both widely used measures of the degree of multi-collinearity of the ith independent variable with the other independent variables in a regression model. Unfortunately, several rules of thumb – most commonly the rule of 10 – associated with VIF are regarded by many practitioners as a sign of severe or serious multi-collinearity (this rule appears in both scholarly articles and advanced statistical textbooks). When VIF reaches these threshold values researchers often attempt to reduce the collinearity by eliminating one or more variables from their analysis; using Ridge Regression to analyze their data; or combining two or more independent variables into a single index. These techniques for curing problems associated with multi-collinearity can create problems more serious than those they solve. Because of this, we examine these rules of thumb and find that threshold values of the VIF (and tolerance) need to be evaluated in the context of several other factors that influence the variance of regression coefficients. Values of the VIF of 10, 20, 40, or even higher do not, by themselves, discount the results of regression analyses, call for the elimination of one or more independent variables from the analysis, suggest the use of ridge regression, or require combining of independent variable into a single index.