The product of two variables, say Female and Age, that constitutes
a new variable and that captures, if it proves to be significant, the combined effect
of the two original variables. An interaction variable is formed by multiplying the
corresponding cells of the two variables and placing the resulting products in a new
column, usually denoted, for example, by Female × Age.
Interaction terms
can be created from any two variables. Most commonly, though, they
are created from interacting either two categorical variables, or a categorical variable
and a numerical variable. Interaction variables created from two numerical variables
really lead us away from linear models for the data and create one type of quadratic
model (See chapter 13).
Base Variable
These are the original ”uninteracted” variables from which the interaction
terms were created.