Introduction to Econometrics

Chapter 7 : Binary choice models

By Lund University

This chapter is an introduction to microeconometric models. We will look at the simplest of these types of models, the binary choice model, a model where your dependent variable is a dummy variable. It turns out that we can use the same methods described in chapter 4, the model is then called the linear probability model. However, the linear probability model has some problems. For example, predict probabilities may be less than zero and/or larger than 100%. In order to rectify this problem, new models are presented (the probit- and the logit model) and a new technique for estimating these models is introduced (maximum likelihood).

Binary choice models, lectures

Binary choice models

Binary choice models, inference

The problem with nonstationary data