Which of the following is a drawback of using LPM models?
A) LPM models cannot handle dichotomous dependent variables.
B) LPM fitted values do not always fall within the range of 0 and 1.
C) LPM models require us to assume errors are normally distributed.
D) LPM models are complicated to interpret.

Question

Quizplus · Accepted Answer

Linear Probability Models are a type of regression model used for binary dependent variables. They are called "linear" because they assume a linear relationship between the independent variables and the probability of the dependent variable being 1. However, one of the key limitations of LPMs is that the predicted probabilities can fall outside the range of 0 and 1, which does not make sense for probabilities. This is because the LPM does not constrain the estimated probabilities to be within this range, unlike logistic regression or probit models which are designed to produce estimates that are bounded between 0 and 1.

Which of the Following Is a Drawback of Using LPM