20MIA1061(YASH NAIR)_ECO LAB - 8

Q. Find a data set where the dependent variable is a categorical

variable, and it must have more than two categories. The
independent variables can be continuous one and keep at least 3
independent variables. Run the following model and interpret the
results.

(i) Ordered Probit

Interpret :

Model Fit:
Log Likelihood: The log-likelihood starts at a lower value and increases with
each iteration, indicating that the model is improving. The final
log-likelihood is -513.89879.

LR chi-squared (Model Fit): The chi-squared statistic is 96.51, and the

associated p-value is less than 0.001 (p < 0.001), indicating that the model
with predictors significantly improves the fit compared to a null model.

Pseudo R-squared: The pseudo R-squared value is 0.0858, indicating that

approximately 8.58% of the total variation in the ordinal outcome is
explained by the model.

Coefficients:

Precipitation: The coefficient for precipitation is -0.0070. However, it is not

statistically significant (p = 0.413), suggesting that changes in precipitation
are not associated with a statistically significant change in the latent
variable (before thresholds) that corresponds to the ordinal outcome.

Temp_max: The coefficient for temp_max is 0.1424. It is statistically

significant (p < 0.001). A one-unit increase in temp_max is associated with
an increase in the latent variable, which corresponds to moving up one
category in the ordinal outcome.

Temp_min: The coefficient for temp_min is -0.1499. It is statistically

significant (p < 0.001). A one-unit increase in temp_min is associated with a
decrease in the latent variable, which corresponds to moving down one
category in the ordinal outcome.

Wind: The coefficient for wind is 0.1074. It is statistically significant (p =

0.003). A one-unit increase in wind is associated with an increase in the
latent variable, which corresponds to moving up one category in the ordinal
outcome.
Thresholds (cut points):

The model estimates cut points (thresholds) to define the boundaries

between the ordinal categories.

(ii) Marginal effect for ordered Probit.

Interpret :

We infer that higher maximum temperatures generally decrease the

probability of all outcomes, while higher minimum temperatures tend to
increase the probabilities. Wind has mixed effects depending on the
outcome category.

(iii) Summary statistics of predicted probability of ordered Probit

Interpret :

Mean Predicted Probability : The model estimates an 8.72% probability

of the outcome category occurring.
Standard Deviation : The standard deviation of the predicted probabilities
is approximately 0.0670.

The minimum predicted probability is approximately 0.0036.The maximum

predicted probability is approximately 0.3359.

(iv) Draw the plot for the marginal effectand explain the plot.

Interpret :

The Average Marginal Effect (AME) of precipitation on Outcome=1 is 0.05.

This means that, on average, a one-unit increase in precipitation leads to a
5% increase in the probability of Outcome=1. However, the 95% CI for this
AME is [-0.01, 0.1]. This means that we are 95% confident that the true
AME of precipitation on Outcome=1 is somewhere between -1% and 11%.
Precipitation: Precipitation increases the probability of all five outcomes,
but the effect is strongest for Outcome=1.
Temp_max: Temp_max decreases the probability of all five outcomes, but
the effect is strongest for Outcome=5.
Temp_min: Temp_min decreases the probability of all five outcomes, but
the effect is strongest for Outcome=4.
Wind: Wind increases the probability of Outcomes=1 and 3, but decreases
the probability of Outcomes=2, 4, and 5.

(v) Compare the result of ordered Probit with ordered logit.

Interpret:

Model Fit:

Both models show improvements in model fit over a null model (p < 0.001
for LR chi-squared), indicating that they are both statistically useful for
predicting the ordinal outcome.

Pseudo R-squared:

The ordered logistic model (0.1009) has a slightly higher pseudo R-squared
value compared to the ordered probit model (0.0858), suggesting that a
slightly larger proportion of the variation in the ordinal outcome.

Coefficients:

The coefficients for the predictor variables (precipitation, temp_max,

temp_min, wind) in both models are generally similar in terms of direction
(positive or negative) and statistical significance.
Both models identify temperature variables (temp_max and temp_min) as
statistically significant predictors of the ordinal outcome, with similar
estimated effects.
Both models also find wind to be a statistically significant predictor.
(vi) Use Akaike’s Information Criteria (AIC) and Bayesian
InformationCriteria to choose better model between ordered Probit
and Ordered logit model

Ordered Probit

Interpret :

The AIC is lower than the BIC, which suggests that the ordered probit
model's fit is better when using the AIC criterion.

Ordered Logit

Interpret :

The AIC is lower than the BIC, which suggests that the ordered logit
model's fit is better when using the AIC criterion.