1. Simple. You would have lost backlink/s.

2. Generally not.

3. Build more backlinks.

Ha exactly what UMS said.

PR is a great way to tell how good your backlinks are. Or in other words, you should use it to check out how your sources are doing. However, if your pr goes down it doesn't mean that you will go down in the SERPS.

It just means that google probably isn't seeing as many backlinks as it used to.

Generally with a few high pr links you can get some pretty dang high pr sites. But really, owning a PR 3 site really isn't that bad.

Thanks UMS and Slin! I will go back, check my backlinks and focus on new and good ones.

Build Quality backlinks and also look for niche related one's to get maximum benefits.

Google is always screwing around with PR levels and this last update was particularly irrational - going from a PR4 to PR3 is no biggie at all.

Some good advice here but a few misleading comments.

They aren't screwing around with it, the public PR info updates every now and then but PR is actually changing all the time. It's a mathematical thing entirely based on links, no one is screwing around with anything.

Those who said your drop in PR is because you lost links are pretty much right. You might not have lost links at all, but one of the sites/pages linking to you may have lost links and THEIR PR dropped, therefore they're passing less to you. While 'build links' is technically the correct answer, the real solution is to build more links from high PR pages. These are the only pages that can increase your own PR.

And yes, PR does play a role in your rankings. Can't believe how often I see people say it doesn't. You won't see a sudden drop because as I said the change from PR4 to PR3 is just the public info updating, in reality the PR on the page may have dropped weeks ago.