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Unformatted text preview: f values in the data set is large (relatively few “repeats”) Examples X = household income (many households) X = number of employees (many firms) X = credit scores (many people) X = number of patents issued in the US (many years) Other approximately continuous variables 19 CATEGORICAL VARIABLES Categorical variables are often coded (entered into excel etc) using Dummy Variables Definition A dummy variable uses the values 1 and 0 to code a characteristic or outcome that is inherently categorical. 20 CATEGORICAL VARIABLES Two Category Examples: Examples ⎧1 if male X=⎨
⎩0 if female ⎧1
⎩0 if employed if unemployed (sample of people) (sample of labor force participants) ⎧1 if drug is effective (sample of patients) X=⎨
0 if not
⎩ Other dummy variables 21 CATEGORICAL VARIABLES More than two categories: College graduate’s labor market status X1 = ⎧1 if employed ⎨ ⎩0 if not...
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- Spring '08