The Major Flaw of the Linear Probability Model Is That $R ^ { 2 }$

question 21

Short Answer

The major flaw of the linear probability model is that a. the actuals can only be 0 and 1 , but the predicted are almost always different from that.
b. the regression $R ^ { 2 }$ cannot be used as a measure of fit.
c. people do not always make clear-cut decisions.
d. the predicted values can lie above 1 and below 0 .

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Definitions:

Journal Entries

The recording of financial transactions in a company's ledger, detailing the accounts affected and the amounts debited or credited.

Authorized

Refers to the official approval or permission for something, often used in the context of authorized shares in a corporation.

Outstanding

Describes something that is currently due or has not been settled or resolved, often referring to payments or checks.

Treasury Stock

Shares once issued and then retrieved by the originating company, lowering the volume of shares trading on the open market.