5.$5.$ Suppose we collect $$suspicion of elder financial exploitation$$ data for a group of bank clients.

The observed variables are X1=$1=$ Age of client in years, X2=$2=$ a binary variable as to whether

Power of Attorney has been granted to an agent ($($X2=1)$2=1)$ or not ($($X2=0).$2=0).$ X3=$3=$ a binary

variable as to whether, as indicated by a proprietorial algorithm, abnormal transaction behavior

is evident on an account ($($X3=1)$3=1)$ or not ($($X3=0).$3=0).$ Outcome variable, Y,$,$ is equal to 1$1$ if

analysts suspect an instance of elder financial abuse and Y =0$=0$ if not.

We tabulate results as follows:

Coefficient Std.$.$ error t−$-$ratio p−$-$value

$$alpha −0.700.064−10.970.0000$-0\mathrm{.}700\mathrm{.}064-10\mathrm{.}970\mathrm{.}0000$

$$beta 10.620.2472.4850.0347$10\mathrm{.}620\mathrm{.}2472\mathrm{.}4850\mathrm{.}0347$

$$beta 2−0.090.141−0.6450.5181$2-0\mathrm{.}090\mathrm{.}141-0\mathrm{.}6450\mathrm{.}5181$

$$beta 30.030.0083.5420.0003$30\mathrm{.}030\mathrm{.}0083\mathrm{.}5420\mathrm{.}0003$

a.$.$ Write down the general form of logistic regression and interpret the results for the

Age of Clients and Abnormal Transaction Behavior coefficients. (30$(30$ marks)$)$

b.$.$ Estimate the probability that a 79$79$ year old bank customer who has not granted Power

of Attorney to an agent and has suspicious transaction activity ($($i.$.$e.$.$ as per

proprietorial algorithm),$),$ on her account, is suffering elder financial abuse via this

account. (20$(20$ marks)$)$

c.$.$ Write comments on any reservations you have regarding the estimated probability in

Q.5($\mathrm{.}5($b)(20$)(20$ marks)$)$

d.$.$ Explain the main difference($($s)$)$ between Linear Probability models and Logit/$/$Probit

models.

Answer rating: 100% (QA)

a The general form of logistic regression is given by PY111e1X12X23X3 Here Y is the outcome variable 1 if elder financial abuse is suspected 0 otherwise is the intercept 1 2 and 3 are the coefficients ... View the full answer