B17 Dummy variables Flashcards
What are qualitative variables in regression
Variables that lack meaningful numerical values but rather represents categories
What is another word for dummy variable
indicator variable
What is a dummy variable
A variable that takes the value of 1 for one category and 0 for the others. Aka a boolean.
Dummy variables affect the intercept but not the slope in linear regression
True
The significance of each dummy variable can be determined with a standard t-test
True
What does b represent for dummy variables
The effect the dummy variable d has when it is 1.
How many dummy variables are used to account for 3 categories
2, i assume becouse you can use 00, 10 and 11 to get the three different values
Why should you never include as many dummy variables as there are categories
Because that would lead to perfect multicollinearity aka the dummy variable trap
How many indicator variables should be used based on classes
One less then the number of classes tested to avoid the dummy variable trap
What is an interaction variable Bxd
A dummy variable that has an effect that depends on an independent variable and thus effects the slope.
The test of significance does NOT change when a dummy variable affects the slope
true
What is a binary choice regression model
A regression model where the response variable Y is a binary, boolean, dummy variable
What are some other words for binary choice models
discrete choice models and qualitative response models
What is a linear regression model applied to a binary response model called
A linear probability model LPM. It shows how an increase in X effects the probability of Y being 1
What are the drawbacks of the linear probability model LPM
That it can produce probabilities greater than 1 and smaller than 0 and that it assumes a linear relationship
