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.

Question

Quizplus · Accepted Answer

The Answer of 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.