Problem
Discrete dependent variable. What is a latent variable? Write down a model with the use of a latent variable. Explain how it is possible to estimate the utility function with the use of the conditional model for binary data. Describe advantages and disadvantages of linear probability model, probit and logit models. Explain the meaning of independence of irrelevant alternatives assumption and the dierence between multinomial and conditional logits. Give examples of empirical problems which can be analyzed with these models. Explain the dierence between the ordered logit and hierarchical logit. Give an example of an empirical problem in which we should use the ordered choice model.