Final answer:
Recoding is the process of taking a variable with multiple categories and transforming it into a variable with fewer categories by changing the way the data is categorized.
Step-by-step explanation:
The most specific term to describe the process of taking a variable with five categories and transforming it into a variable with three categories is called recoding. This process involves changing the way data is represented or categorized, which can be useful for a variety of statistical analyses where simplifying categories makes interpretation easier. Recoding can reduce the complexity of the data and can be essential for creating meaningful comparisons or for data to fit the assumptions of certain statistical tests. The other options, such as stratification, interpolation, and extrapolation, do not accurately describe this process of modifying categories within a variable.