Binary Choice Models Flashcards
What are the 4 scales of measurement?
- Nominal (Categorical)
- Ordinal
- Interval
- Ratio
What is a nominal scale variable?
- Values provide classification but not an indication of order
- Numbers are only used to categorise objects
- Mathematical operations are meaningless
What is an ordinal scale variable?
- Values provide an indication of order
- Cannot determine distances between the objects
- Mathematical operations are meaningless
What is an interval scale variable?
- Values provide an indication of order
- Have an equal distance between scale points
- Ratios are meaningless
What is a ratio scale variable?
- Values provide indication of order
- Have an equal distance between scale points
- Zero represents an absence of the object
- Mathematical operations are meaningful
What are the problems with the Linear Probability Model?
What is the log likelihood ratio index?
What is the Pseudo R-Squared?
How do we draw the graph to represent when y*=1 or 0 for a binary variable?
What is the condition for y=1?
Pr(y=1│x)=Pr(ε>-[α+βx]|x)
What is the variance of the error term in the probit model?
1
What is the variance of the error term in the logit model?
π2/6
How do the probit and logit models differ when normalised?
the logit model has a variance of √1.6
How do we normalise the logit and probit models?