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Thread: Dis./Avantadges of estimating of binary response model with OLS

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    Post Dis./Avantadges of estimating of binary response model with OLS




    In the Maximum Likelihood Estimator context, I can't find answers for those two questions:
    - What are the advantages and disadvantages of estimating of a binary response model with OLS ?
    - Same questions but compared to MLE ?

    I thank you in advance

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    Re: Dis./Avantadges of estimating of binary response model with OLS

    What do you think the issues may be? Or how may sample size come into play?
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    Re: Dis./Avantadges of estimating of binary response model with OLS

    What type of estimates do you get when running linear and logistic models?
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    Re: Dis./Avantadges of estimating of binary response model with OLS

    Well if we have a binary model, OLS will just get 0 and 1 and it will not be as precise as if it was more precise value, right ? If we have a big sample, OLS wouldn't be able to show the variety of the different values.

    I'm supposed to get a consistent and if possible efficient estimates when I run a model as far as I know.

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    Re: Dis./Avantadges of estimating of binary response model with OLS

    Well one kicks out average values and the other kick out log(odds). Two completely different types of numbers and not inter-changeable. I think my sample size comment is moot, I was thinking of Poisson regression.
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    Re: Dis./Avantadges of estimating of binary response model with OLS

    Alright, I see your point. What I have up to now are the following:

    + of ML
    - Consistency, efficiency, asymptotic normality
    - Unifiied, general theory of estimation and testing

    - of ML
    - Need to specify the distribution
    - Danger of Misspecification
    - All results are asymptotic (why is that a problem ? )

    + of Linear Probability Model:
    - Simple OLS estimation (with robust s.e.)
    - Straightforward interpretation of parameters
    - Other linear methods can be easily applied

    - of LPM
    - Heteroskedastic s.e.
    Predictions sometimes outside the unit interval

    Do you agree with that ?

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    Re: Dis./Avantadges of estimating of binary response model with OLS

    So for clarification, your question is what are the disadvantages of using a linear regression model when your dependent variable is binary, correct?
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    Re: Dis./Avantadges of estimating of binary response model with OLS

    Yes, and the advantages. Same for the ML.

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    Re: Dis./Avantadges of estimating of binary response model with OLS


    Quote Originally Posted by endlessend25 View Post
    - of LPM
    - Heteroskedastic s.e.
    Predictions sometimes outside the unit interval

    Do you agree with that ?
    OLS will also most likely violate the assumption of normality.

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