Consider the linear probability model. (a) When yi = 1, i = 1 ( + xi).
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Consider the linear probability model.
(a) When yi = 1, εi = 1 − (α + βxi). When yi = 0, εi = −(α + βxi). If p =
P(yi = 1 | xi) and 1 − p = P(yi = 0 | xi), prove that E(εi) = p − (α + βxi).
Interpret this result.
(b) Based on the information in part
a, prove that
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