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In: Statistics and Probability

Consider a binary response variable y and two explanatory variables x1 and x2. The following table...

Consider a binary response variable y and two explanatory variables x1 and x2. The following table contains the parameter estimates of the linear probability model (LPM) and the logit model, with the associated p-values shown in parentheses.

Variable LPM Logit
Constant −0.40 −2.20
(0.03 ) (0.01 )
x1 0.32 0.98
(0.04 ) (0.06 )
x2 −0.04 −0.20
(0.01 ) (0.01 )


a. At the 5% significance level, comment on the significance of the variables for both models.

Variable LPM Logit
x1   (Click to select)   Significant   Not significant   (Click to select)   Significant   Not significant
x2   (Click to select)   Significant   Not significant   (Click to select)   Significant   Not significant



b. What is the predicted probability implied by the linear probability model for x1 = 4 with x2 equal to 10 and 20? (Round intermediate calculations to at least 4 decimal places and final answers to 2 decimal places.)

yˆy^
x1 = 4, x2 = 10
x1 = 4, x2 = 20



c. What is the predicted probability implied by the logit model for x1 = 4 with x2 equal to 10 and 20? (Round intermediate calculations to at least 4 decimal places and final answers to 2 decimal places.)

yˆy^
x1 = 4, x2 = 10
x1 = 4, x2 = 20

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