One of the predictors I had in a logit model is "City". Problem is this categorical variable has too many factor levels. e.g. In a Sample of $\sim 3000$ there are already $\sim 200$ different cities.
Is it fair to still retain City as a predictor or should I purge it entirely from the model? An alternative is to retain, say, the top five most common cities and then code all the rest as a new factor level "Others". The top city occurs $\sim 60$ times but by the fifth common city this occurance drops down to 30. Some cities occur only once or twice in the dataset.
PS. One problem I face (if I retain all factor levels) is that certain levels occur in the validation set but not in the training set. Then the model complains at validation time.
PPS. On more reading, I found sugesstions to use combine.levels() from the Hmisc package in R. Maybe that will work, though not sure how exactly yet.
Is there an elegant way to deal with these issues?
