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    Lbymet Pset1

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    Yanyan Alberto
    1. The Linear Probability Model is not as well suited as logistic regression for estimating a dependent variable that only takes on values of 0 or 1 because the LPM can predict probabilities outside the valid 0-1 range, while logistic regression constrains predictions to between 0 and 1. 2. Using UCLA's binary choice data, a logit regression finds that with a GPA of 4.0, belonging to a top ranked school (rank=1), and a GRE score of 800, the chances of admission are over 99%. 3. The key difference between logit and probit models is that logit uses a logistic cumulative distribution function to model probabilities, while probit uses a normal CDF, but they produce similar results

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    Lbymet Pset1

    Uploaded by

    Yanyan Alberto
    88 views1 page
    1. The Linear Probability Model is not as well suited as logistic regression for estimating a dependent variable that only takes on values of 0 or 1 because the LPM can predict probabilities outside the valid 0-1 range, while logistic regression constrains predictions to between 0 and 1. 2. Using UCLA's binary choice data, a logit regression finds that with a GPA of 4.0, belonging to a top ranked school (rank=1), and a GRE score of 800, the chances of admission are over 99%. 3. The key difference between logit and probit models is that logit uses a logistic cumulative distribution function to model probabilities, while probit uses a normal CDF, but they produce similar results

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    LBYMET PSET1

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    LBYMET PSET1

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    1. The Linear Probability Model is not as well suited as logistic regression for estimating a dependent variable that only takes on values of 0 or 1 because the LPM can predict probabilities outside the valid 0-1 range, while logistic regression constrains predictions to between 0 and 1. 2. Using UCLA's binary choice data, a logit regression finds that with a GPA of 4.0, belonging to a top ranked school (rank=1), and a GRE score of 800, the chances of admission are over 99%. 3. The key difference between logit and probit models is that logit uses a logistic cumulative distribution function to model probabilities, while probit uses a normal CDF, but they produce similar results

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    88 views1 page

    Lbymet Pset1

    Uploaded by

    Yanyan Alberto
    1. The Linear Probability Model is not as well suited as logistic regression for estimating a dependent variable that only takes on values of 0 or 1 because the LPM can predict probabilities outside the valid 0-1 range, while logistic regression constrains predictions to between 0 and 1. 2. Using UCLA's binary choice data, a logit regression finds that with a GPA of 4.0, belonging to a top ranked school (rank=1), and a GRE score of 800, the chances of admission are over 99%. 3. The key difference between logit and probit models is that logit uses a logistic cumulative distribution function to model probabilities, while probit uses a normal CDF, but they produce similar results

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 1

    De La Salle University

    Economics Department

    LBYMETF PSET1

    Directions: Implement all the tasks using Stata. Email your .do files on or before Feb. 13,
    04:14pm. Comment the interpretations and explanations in the .do file as well (with an asterisk
    (*)).

    1. Why is the Linear Probability Model better than Ordinary Least Squares when estimating a
    dependent variable that only takes on a value of 0 or 1?
    2. Use http://www.ats.ucla.edu/stat/stata/dae/binary.dta. Regress admit with gre, gpa, and rank. If
    you proceed to predict Yhat after the regression and list the values, why are some of the Yhat
    values negative?
    3. Use this data from the internet. http://www.ats.ucla.edu/stat/stata/dae/binary.dta
    a. Make a logit regression using admit gre gpa rank.
    b. If you belong to a good school ie. rank=1, what are the chances that you will be
    accepted?
    c. If your GPA is 4.0, you belong to a good school ie. rank=1, and you have a GRE score
    of 800, what are the chances of you being accepted?
    4. What is the difference between logit and probit?
    5. Mortgage lenders are interested in determining borrower and loan factors that may lead to
    delinquency or foreclosure. In the file lasvegas.dat are 1000 observations on mortgages for
    single-family homes in Las Vegas, Nevada, during 2008. The variable of interest is
    DELINQUENT, an indicator variable = 1 if the borrower missed at least three payments (90 or
    more days late), but zero otherwise. Explanatory variables are LVR = the ratio of the loan
    amount to the value of the property; REF = 1 if purpose of the loan was a ‘‘refinance’’ and = 0 if
    loan was for a purchase; INSUR = 1 if mortgage carries mortgage insurance, zero otherwise;
    RATE = initial interest rate of the mortgage; AMOUNT = dollar value of mortgage (in
    $100,000); CREDIT = credit score, TERM = number of years between disbursement of the loan
    and the date it is expected to be fully repaid, ARM = 1 if mortgage has an adjustable rate, and =
    0 if mortgage has a fixed rate.
    (a) Estimate the linear probability (regression) model explaining DELINQUENT as a
    function of the remaining variables. Are the signs of the estimated coefficients
    reasonable?
    (b) Interpret the coefficient of INSUR. If CREDIT increases by 50 points, what is the
    estimated effect on the probability of a delinquent loan?
    (c) Compute the predicted value of DELINQENT for the final (1000th) observation.
    Interpret this value.
    (d) Compute the predicted value of DELINQUENT for all 1000 observations. How many
    were less than zero? How many were greater than 1? Explain why such predictions are
    problematic.

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