Dummy coding is used when categorical variables (e.g., sex, geographic location, ethnicity) are of interest in prediction. It provides one way of using categorical predictor variables in various kinds of estimation models, such as linear regression. Dummy coding uses only 1s and 0s to convey all the necessary information on group membership. With this kind of coding, the researcher enters a 1 to indicate that a person is a member of a category, and a 0 otherwise.

Dummy codes are a series of numbers assigned to indicate group membership in any mutually exclusive and exhaustive category. Category membership is indicated in one or more columns of 0s and 1s. For example, a researcher could code sex as 1 = female, 0 = male or 1 = ...