econ 140 7 - ECONOMICS 140 Professor Enrico Moretti 3/15/10...

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ECONOMICS 140 Professor Enrico Moretti 3/15/10 Lecture 7 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy or illegally distribute (electronically or otherwise) these notes. Our student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. ANNOUNCEMENTS Almost done with midterm grading; we hope to hand it out in section starting on Tuesday; it’s highly likely it’ll be graded for those of you with lecture later in the week. Today we will get into the more interesting part of this class. We will cover Chapters 11 and 12; we’ll begin to look at the regression model with more than one explanatory variable. Please skip sections: 11.4.2 11.4.3 11.4.4 LECTURE Today we’ll cover the multiple regression model, which is: Y i = B 0 +B 1 X 1i + B 2 X 2i + B 3 X 3i +…+ B k X ki + ϵ i Instead of having just one determinant of the outcome, we now have k determinants. Now, we must be careful with how we include the model. We used to take B1 as the effect of increasing X1 by one unit on Y. Now: B 1 =The effect of Y on increasing X by 1 unit holding constant X 2 ,X 3 ,…X k . “Holding Constant” is what’s the most important new thing in this model. We can still write B 1 : I want to highlight the importance of this “holding constant” notion; this is why we do econometrics. This model is useful because it can isolate the effect of X on Y, holding everything else constant. It’s a powerful thought experiment that we don’t see in practice. It’s able to focus on one variable, controlling for other things. Examples Suppose: Y=Grade in Econ 140 We run the regression: Y i = B 0 +B 1 Hours i + B 2 IQ i + B 3 Stat i + ϵ i Where hours is the amount of time you spend studying, IQ is your IQ, and Stat is your grade in a previous stat class that’s a pre-req for Econ 140. Epsilon captures everything else, like sleep, luck, and sickness. B 1 is the effect of increasing the amount of hours you study by one unit holding constant how smart you are and your statistical background. So if I take 2 students with the same IQ and Stat’s knowledge, but one studies 100 hours, one studies 99 hours, B 1 tells me on average how much higher the grade of the student who studied 100 hours is. In reality, this is very difficult to do; you don’t see this in the data.
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Economics 140 ASUC Lecture Notes Online: Approved by the UC Board of Regents 3/15/10 D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. 2
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econ 140 7 - ECONOMICS 140 Professor Enrico Moretti 3/15/10...

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