lec32v2_1up

lec32v2_1up - Stat 104: Quantitative Methods for Economists...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Stat 104: Quantitative Methods for Economists Class 33: Dummy Variables 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Dummy variables What is 2+2 ? 5 ? X Y 2
Background image of page 2
Dummy Variables s Many variables in the world are fundamentally discrete -- - e.g., you are male or female, have a your tonsils or not, eat/drink Four Loko or not, etc. ummy variable r dicator variable is a variable s A dummy variable (or indicator variable ) is a variable that takes on a value of zero or one. Note : This section considers X variables that are indicator variables. When Y is an indicator variable, least-squares is not the appropriate method (logistic regression is, which we get to in a bit). 3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Some Examples b categorical variable (e.g., 1 if female, 0 if not) b temporal variable (e.g., 1 if Monday, 0 if not) b spatial variable (e.g., 1 if Midwest, 0 if not) b qualitative variable (e.g., 1 if “good at beer pong,” 0 if not) 4
Background image of page 4
Example: Sexual Discrimination s Simple regression model: s Salary i = β 0 + β 1 Male i + ε i s How do you interpret this model? ammer Time! s Hammer Time! 5 Break it down, break it down.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
s The model says Salary i = β 0 + β 1 Male i + ε i s We are really fitting two models at once. s So for females (male variable = 0) b E[Salary | male = 0] = β 0 s And for males (male variable = 1) b E[Salary | male = 1] = β 0 + β 1 s So, β 1 is the expected difference between a male’s salary and a male’s salary. s For instance, β 1 = 10,000 means that females earn $10,000 less (on average). 6
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 30

lec32v2_1up - Stat 104: Quantitative Methods for Economists...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online