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Equation (11.3)in your textbook presents the regression results for the linear probability model, and equation (11.10)the results for the logit model.
a. Using a spreadsheet program such as Excel, plot the predicted probabilities for being denied a loan for both the linear probability model and the logit model if you are black. (Use a range from 0 to 1 for the P/I Ratio and allow for it to increase by increments of 0.05.)
b. Given the shortcomings of the linear probability model, do you think that it is a reasonable approximation to the logit model?
c. Repeat the exercise using predicted probabilities for whites.
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The act or process of making choices or judgments after considering possible actions and their outcomes.
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A cognitive distortion experienced during adolescence, leading individuals to believe they are unique and invulnerable.
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Sexual activity without the use of barrier methods of contraception, which increases the risk of sexually transmitted infections and unintended pregnancies.
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