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

endlessend25

New Member
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 ?

hlsmith

Less is more. Stay pure. Stay poor.
What do you think the issues may be? Or how may sample size come into play?

hlsmith

Less is more. Stay pure. Stay poor.
What type of estimates do you get when running linear and logistic models?

endlessend25

New Member
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.

hlsmith

Less is more. Stay pure. Stay poor.
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.

endlessend25

New Member
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 ?

hlsmith

Less is more. Stay pure. Stay poor.
So for clarification, your question is what are the disadvantages of using a linear regression model when your dependent variable is binary, correct?

Dragan

Super Moderator
- 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.