Dummy Var|ab|es

met|mes there w||| be sme exp|anatry var|ab|es |n ur

regress|n equat|n that are n|y qua||tat|ve uch as
students w|th CGA abve 3S fema|e r ma|e emp|yee age
abve r be|w S0 the f|rm bankrupt r therw|se etc In such
cases ne ften takes accunt f these effects by a dummy
var|ab|e
Ir Lxamp|e
Dependent Var|ab|e () CGA
Independent var|ab|e (k) N f hurs spent n study

1 CGA abve r equa| t 3S
0 CGA be|w 3S
( CGA) k (N f hurs
spent n study)










Va|ues f are
shwn n|y by 0
1
et + 042 k
Interpretat|n 1here |s 42 prbab|||ty that |f 1 mre] add|t|na|
hur |s spent n study CGA w||| ||ke|y t be abve 3S
Interpretat|n 1he prbab|||ty f gett|ng mre than 3S fr every 1
add|t|na| hur w||| be 42
Cr
Ma[r tw types f mde| use dummy var|ab|es
rb|t Mde| (rbab|||st|c Mde|)
g|t Mde| (g|st|c Mde|)
rb|t Mde| (rbab|||st|c Mde|)
rb|t mde| |s used t dente a regress|n mde| |n wh|ch the dependent
var|ab|e |s tak|ng the va|ue 1 r 0 It prv|des a prbab|||st|c express|n
Lxamp|e |s g|ven |n s||de 4
et + 042 k
Interpretat|n 1here |s 42 prbab|||ty that |f 1 mre] add|t|na|
hur |s spent n study CGA w||| ||ke|y t be abve 3S
rbab|||ty d|str|but|n f rb|t mde|
k

g|t Mde| (g|st|c Mde|)

g|t mde| |s used t dente a regress|n mde| |n wh|ch genera||y the
|ndependent var|ab|e k |s tak|ng the va|ue 1 r 0 It prv|des a |g|st|c
express|n
Ir Lxamp|e
Dependent Var|ab|e () Death frm heart d|sease
Independent var|ab|e (k) Iema|e r Ma|e
k
1 Iema|e
0 Ma|e
k

et 12 k
Interpretat|n ges dwn by 12 |f the pat|ent |s fema|e
Interpretat|n 1endency f death frm heart d|sease ges dwn by
12 |f the pat|ent |s fema|e
Cr
rbab|||ty d|str|but|n f g|t mde|
1b|t ] 1runcated regress|n Mde|
W met|mes has cnt|nus va|ues but sme va|ues are 0 1
W nere |f we d nrma| regress|n f 0 va|ues sme errrs w||| be
equa| t negat|ve pred|cted va|ue as e| | Assumpt|n f nrma||y
d|str|buted errrs w||| be v||ated 1hen | w||| be negat|ve|y crre|ated
w|th | In th|s s|tuat|n nrma| regress|n w||| nt be re||ab|e and
apprpr|ate
W In th|s case we've t truncate 0 bservat|ns "1b|t mde|" |s used
fr th|s purpse
W 1runcate desn't mean exc|ud|ng va|ues rather |t means transfrm|ng
r nrma||z|ng va|ues
W In 1b|t mde| * |s the var|ab|e wh|ch has the f||w|ng feature
* |s bserved |f * 0
* |s nt bserved |f * 0
W 1h|s |s 1b|t mde| wh|ch |s f|rst ana|yzed |n the ecnmetr|cs ||terature by
1b|n It |s a|s knwn as a censred nrma| regress|n mde| because sme
bservat|ns f * are censred Anther name f 1b|t mde| |s "1runcated
kegress|n Mde|"
1hank u