In studying the purchase of durable goods Y (Y =

In studying the purchase of durable goods Y (Y = 1 if purchased, Y = 0 if no purchase) as a function of several variables for a total of 762 households, Janet A. Fisherˆ—obtained the following LPM results:

Explanatory Variable Standard Error Coefficient Constant 0.1411 1957 disposable income, X1 (Disposable income = X1)?, X2


a. Comment generally on the fit of the equation.

b. How would you interpret the coefficient of ˆ’0.0051 attached to the checking accounts variable? How would you rationalize the negative sign for this variable?

c. What is the rationale behind introducing the age-squared and number of childrensquared variables? Why is the sign negative in both cases?

d. Assuming values of zero for all but the income variable, find out the conditional probability of a household whose income is $20,000 purchasing a durable good.

e. Estimate the conditional probability of owning durable good(s), given:

X1 = $15,000, X3 = $3,000, X4 = $5,000, X6 = 0, X7 = 1, X8 = $500, X9 = $300,

X10 = 0, X11 = 35, X13 = 1, X14 = 2, X16 = 0.