Question

1) Define and explain what is meant by the following:

a. Limited Dependent Variables

b. The linear Probability Model

c. Probit and Logit Models

Explain whether, or under what circumstance Probit and Logit Models causes a problem for inference in Maximum Likelihood estimation?

Answer 1

a. Variables whose range of possible values is restricted within a given domain

b. It is a regression technique where the output variable is binary, and one or more explanatory variables are used to predict the outcome.

c. These are binary response models where the dependent variable can only take on of two values. Probit model uses cumulative distribution function of standard normal distribution whereas the logit model uses cumulative distribution function of standard logistic distribution.

P.S. Answering 4 sub parts