3/7/2016

Linear Probability Model

Probit Regression

Questions to be answered

What traits get you into law school?

Who tends to have extramarital affairs?

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Today were going to talk about how to deal with having a dummy variable on the

LHS

0,1
Binary outcomes of interest could be
Accepted/rejected (schools, jobs, etc.)
Win/lose (elections, games, etc.)
Divorce

Mortality

Owning a car

ADMIT

-1
120

130

140

150

160

170

180

LSAT
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3/7/2016

Predicts
accept

ADMIT

Predicts
reject

-1
120

130

140

150

160

170

180

LSAT

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ADMIT

What the heck

does this
predict?

-1
120

130

140

150

160

170

180

LSAT
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3/7/2016

ADMIT

-1
120

130

140

150

160

170

180

Dont even
want to think
about this
one.

LSAT
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Works like a normal linear regression, but the interpretation of coefficients change

because

is now binary.

A predicted value, , is the predicted probability that the dependent variable

equals one, given .

1 for a one-unit change

in the RHS variable of interest, holding everything else constant.

A coefficient represents the change in probability that

3/7/2016

1 for a one-unit change

in the RHS variable of interest, holding everything else constant.

A coefficient represents the change in probability that

So

percentage point (not percentage) increase in the probability that

everything else constant
Marginal effect of

1, holding

now has slightly different interpretation!

Dependent Variable: ADMIT

Method: Least Squares
Date: 08/26/14 Time: 15:50
Sample: 1 1643 IF LSAT>99 AND LSAT<200 AND GPA<=4
Included observations: 1567
Variable
C
LSAT
R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

Coefficien...

Std. Error

t-Statistic

-4.569073
0.030857

0.211360
0.001339

-21.61751
23.04413

0.253351
0.252874
0.394742
243.8602
-765.9135
531.0320
0.000000

1 point on LSAT increases

probability of admission by 3
percentage points.
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Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

Prob.
0.0000
0.0000
0.296107
0.456685
0.980107
0.986944
0.982648
1.930402

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1.0

Admission probability

0.8
0.6
0.4
0.2
0.0
120

130

140

150

160

170

180

LSAT

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Prob

11

is the cumulative distribution function for some probability distribution.

CDFs have an S-shape and can only take values between zero and one!

normal gives probit model.

logistic gives logit model.

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12

3/7/2016

Prob
If

0, as

No matter how high the score is, the predicted probability can never be >1

If

0, as

No matter how low the score is, the predicted probability can never be <0

13

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Small
marginal
effect

1.0

Admission probability

0.8
0.6

Large
marginal
effect

0.4
0.2

Small
marginal
effect
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0.0
120

130

140

150
LSAT

160

170

180
14

3/7/2016

Dependent Variable: ADMIT

Method: ML - Binary Probit (Quadratic hill climbing)
Date: 08/26/14 Time: 16:13
Sample: 1 1643 IF LSAT>99 AND LSAT<200 AND GPA<=4
Included observations: 1567
Convergence achieved after 6 iterations
Covariance matrix computed using second derivatives
Variable

Coefficien...

Std. Error

z-Statistic

Prob.

C
LSAT
GPA
WARES

-33.90669
0.166671
1.854844
0.851325

1.684663
0.009007
0.151873
0.090676

-20.12669
18.50393
12.21315
9.388630

0.0000
0.0000
0.0000
0.0000

McFadden R-square...
S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Restr. deviance
LR statistic
Prob(LR statistic)

0.400316
0.456685
0.733757
0.747432
0.738840
1903.998
762.2008
0.000000

Obs with Dep=0

Obs with Dep=1

1103
464

Mean dependent var

S.E. of regression
Sum squared resid
Log likelihood
Deviance
Restr. log likelihood
Avg. log likelihood
Total obs

0.296107
0.333010
173.3295
-570.8988
1141.798
-951.9992
-0.364326
1567

15

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Data from a 1969 survey, filled out by the readers of Psychology Today. The results
were published in the July 1970 issue. The sample includes employed men and
women married for the first time.
,

= 1 if person had at least 1 affair, 0 otherwise

= 1 if person has kids, 0 otherwise
1-15 years in the data

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Dependent Variable: AFFAIR

Method: ML - Binary Probit (Quadratic hill climbing)
Date: 08/26/14 Time: 16:23
Sample: 1 601
Included observations: 601
Convergence achieved after 4 iterations
Covariance matrix computed using second derivatives
Variable

Coefficien...

Std. Error

z-Statistic

Prob.

C
-1.349069
KIDS
0.663679
YEARSMARRIED
0.086164
KIDS*YEARSMARRIE... -0.074977

0.169544
0.234303
0.028282
0.031447

-7.957044
2.832564
3.046628
-2.384259

0.0000
0.0046
0.0023
0.0171

McFadden R-squared
S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Restr. deviance
LR statistic
Prob(LR statistic)
Obs with Dep=0
Obs with Dep=1

0.031411
0.433133
1.101768
1.131043
1.113164
675.3770
21.21428
0.000095
451
150

Mean dependent var

S.E. of regression
Sum squared resid
Log likelihood
Deviance
Restr. log likelihood
Avg. log likelihood
Total obs

0.249584
0.427740
109.2282
-327.0814
654.1627
-337.6885
-0.544229
601

17

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Probability of Extramarital Affair As A Function of Years Married

.50
.45
.40
.35
.30
.25
.20
.15
.10

10

12

14

16

YEARS MARRIED
Have kids

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No kids

18