Regression with a Binary

Dependent Variable (SW Chapter 11)

1
Example: Mortgage denial and race
The Boston Fed HMDA data set

2
The Linear Probability Model

3
The Linear Probability Model

4
Example: Linear Prob Model

5
Linear probability model: HMDA data

6
Linear probability model: HMDA data

7
Linear probability model: Application
Cattaneo, Galiani, Gertler, Martinez, and Titiunik (2009). “Housing, Health, and Happiness.”
American Economic Journal: Economic Policy 1(1): 75 - 105

• What was the impact of

Piso Firme, a large-scale
Mexican program to help
families replace dirt floors
with cement floors?

• A pledge by governor
Enrique Martinez y
Martinez led to State of
Coahuila offering free 50m2
of cement flooring ($150
value), starting in 2000, for
homeowners with dirt floors
8
Cattaneo et al. (AEJ:Economic Policy
2009) “Housing, Health, & Happiness”
X1 =
“Program
dummy” = 1
if offered
Piso Firme.

9
Cattaneo et al. (AEJ:Economic Policy
2009) “Housing, Health, & Happiness”
X1 =
“Program
dummy” = 1
if offered Interpretations?
Piso Firme

10
Probit and Logit Regression

11
Probit Regression

12
STATA Example: HMDA data

13
STATA Example: HMDA data, ctd.

14
Probit regression with multiple
regressors

15
STATA Example: HMDA data

16
STATA Example: HMDA data

17
STATA Example: HMDA data

18
Probit Regression Marginal Effects

19
Probit Regression Marginal Effects
. sum pratio;
Variable | Obs Mean Std. Dev. Min Max
-------------+--------------------------------------------------------
pratio | 1140 1.027249 .286608 .497207 2.324675
. scalar meanpratio = r(mean);
. sum disp_pepsi;
Variable | Obs Mean Std. Dev. Min Max
-------------+--------------------------------------------------------
disp_pepsi | 1140 .3640351 .4813697 0 1
. scalar meandisp_pepsi = r(mean);
. sum disp_coke;
Variable | Obs Mean Std. Dev. Min Max
-------------+--------------------------------------------------------
disp_coke | 1140 .3789474 .4853379 0 1
. scalar meandisp_coke = r(mean);

. probit coke pratio disp_coke disp_pepsi;

Iteration 0: log likelihood = -783.86028

Iteration 1: log likelihood = -711.02196
Iteration 2: log likelihood = -710.94858
Iteration 3: log likelihood = -710.94858

Probit regression Number of obs = 1140

LR chi2(3) = 145.82
Prob > chi2 = 0.0000
Log likelihood = -710.94858 Pseudo R2 = 0.0930

------------------------------------------------------------------------------
coke | Coef. Std. Err. z P>|z| [95% Conf. Interval]
-------------+----------------------------------------------------------------
pratio | -1.145963 .1808833 -6.34 0.000 -1.500487 -.791438
disp_coke | .217187 .0966084 2.25 0.025 .027838 .4065359
disp_pepsi | -.447297 .1014033 -4.41 0.000 -.6460439 -.2485502
_cons | 1.10806 .1899592 5.83 0.000 .7357465 1.480373
------------------------------------------------------------------------------ 20
Probit Regression Marginal Effects

21
Logit Regression

22
STATA Example: HMDA data

23
Predicted probabilities from estimated probit and logit
models usually are (as usual) very close in this application.

24
Logit Regression Marginal Effects

25
Comparison of Marginal Effects
LPM Probit Logit
Marginal Effect at Means -.4008 -.4520 -.4905
for Price Ratio (.0613) (.0712) via nlcom (.0773) via nlcom

Average Marginal Effect -.4008 -.4096 -.4332

of Price Ratio (.0613) (beyond eco205) (beyond eco205)

Marginal Effect at Means .0771 .0856 .0864

for Coke display dummy (.0343) (.0381) via nlcom (.0390) via nlcom
Average Marginal Effect .0771 .0776 .0763
For Coke display dummy (.0343) (beyond eco205) (beyond eco205)

26
Probit model: Application
Arcidiacono and Vigdor (2010). “Does the River Spill Over? Estimating the Economic Returns to
Attending a Racially Diverse College.” Economic Inquiry 48(3): 537 – 557.

• Does “diversity
capital” matter and
does minority
representation
increase it?
• Does diversity
improve post-
graduate outcomes
of non-minority
students?
• College & Beyond
survey, starting
college in 1976
27
Arcidiacono & Vigdor (EI, 2010)

28
Arcidiacono & Vigdor (EI, 2010)

29
Arcidiacono & Vigdor (EI, 2010)

30
Logit model: Application
Bodvarsson & Walker (2004). “Do Parental Cash Transfers Weaken Performance in College?”
Economics of Education Review 23: 483 – 495.

• When parents pay for tuition & books does this

undermine the incentive to do well?

• Univ of Nebraska @ Lincoln & Washburn Univ in Topeka,

KS, 2001-02 academic year

31
Bodvarsson & Walker (EconEduR,2004)

32
Bodvarsson & Walker (EconEduR,2004)

33
Estimation and Inference in Probit
(and Logit) Models

34
Probit estimation by
maximum likelihood

35
Special case: probit MLE with no X

36
37
38
39
The MLE in the “no-X” case
(Bernoulli distribution), ctd.:

40
The MLE in the “no-X” case
(Bernoulli distribution), ctd:

41
The probit likelihood with one X

42
The probit likelihood function:

43
The Probit MLE, ctd.

44
The logit likelihood with one X

45
Measures of fit for logit and probit

46
Application to the Boston HMDA
Data (SW Section 11.4)

47
The HMDA Data Set

48
The loan officer’s decision

49
Regression specifications

50
51
52
53
Table 11.2, ctd.

54
Table 11.2, ctd.

55
Summary of Empirical Results

56