Consider a binary response variable y and an explanatory variable x . The follow

Question

Consider a binary response variable y and an explanatory variable x. The following table contains the parameter estimates of the linear probability model (LPM) and the logit model, with the associated p-values shown in parentheses.

Test for the significance of the intercept and the slope coefficients at a 5% level in both models.

What is the predicted probability implied by the linear probability model for x = 26 and x = 35?

What is the predicted probability implied by the logit model for x = 26 and x = 35?

Consider a binary response variable y and an explanatory variable x. The following table contains the parameter estimates of the linear probability model (LPM) and the logit model, with the associated p-values shown in parentheses.

Explanation / Answer

a)

and

b)

Given X = 26

LPM Y = -0.72 + 0.08 X

=   -0.72 + 0.08 (26) = 1.36

and X = 35

LPM Y = -0.72 + 0.08 X

=   -0.72 + 0.08 (35) = 2.08

c)

Given X = 26

Logit Y = -6.10 + 0.30 X

=  -6.10 + 0.30(26) = 1.7

and X = 35

Logit Y = -6.10 + 0.30 X

=  -6.10 + 0.30(35) = -4.40

LPM Reason Intercept Significant Here P-value : 0.03 < alpha 0.05, we reject H0 Slope Significant Here P-value : 0.04 < alpha 0.05, we reject H0

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