Abinomial probability model is to be based on the following index function model:

y?? = α + βd + ε,

y = 1, if y?? > 0,

y = 0 otherwise.

The only regressor, d, is a dummy variable. The data consist of 100 observations that have the following:

Obtain the maximum likelihood estimators of α and β, and estimate the asymptotic standard errors of your estimates. Test the hypothesis that β equals zero by using a Wald test (asymptotic t test) and a likelihood ratio test. Use the probit model and then repeat, using the logit model. Do your results change?

Transcribed Image Text:

y 1 0 24 28 d 1| 32 16