Random Effects Probit and Logit: The Right Marginal Effects for the Right Econometric Specification

JR Bland, A Cook - Available at SSRN 2951889, 2017 - papers.ssrn.com
Available at SSRN 2951889, 2017papers.ssrn.com
Random effects probit and logit specifications are common when analyzing economic
experiments. Stata's fitted values from these estimations, however, appear to fit data poorly
compared to their pooled counterparts. This is entirely due to Stata reporting the median
predictive value, when practitioners expect the mean predictive value. This propagates into
marginal effects calculations, which may lead researchers to under-or over-state the
economic significance of results. We demonstrate a simple procedure for calculating the …
Abstract
Random effects probit and logit specifications are common when analyzing economic experiments. Stata's fitted values from these estimations, however, appear to fit data poorly compared to their pooled counterparts. This is entirely due to Stata reporting the median predictive value, when practitioners expect the mean predictive value. This propagates into marginal effects calculations, which may lead researchers to under-or over-state the economic significance of results. We demonstrate a simple procedure for calculating the correct predictive mean and mean marginal effect in Stata.
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