Transcription of Econometrics II Lecture 2: Discrete Choice Models
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Econometrics II Lecture 2: Discrete Choice Models
Econometrics IILecture 2: Discrete Choice ModelsM ns S derbom 4 April 2011 University of Gothenburg. IntroductionLinear regression is primarily designed for modelling acontinuous,quantitativevariable - economicgrowth, the log of value-added or output, the log of earnings economic phenomena of interest, however, concern variables that are not continuous or perhapsnot even quantitative. What characteristics ( parental) a ect the likelihood that an individual obtains a higher degree? What determines labour force participation (employed vs not employed)? What factors drive the incidence of civil war?Today we will discussbinary Choice Models . These are central Models in applied binary Choice Models are useful when our outcome variable of interest is binary - a commonsituation in applied work.
3. The Regression Approach Consider the linear regression model y = 1 + 2 x 2 +:::+ K x K +u = x +u; (3.1) where is a K 1 vector of parameters, x is a N Kmatrix of explanatory variables, and uis a residual.
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