In a previous post I illustrated that the probit model and the logit model produce statistically equivalent estimates of marginal effects. In this post, I compare the marginal effect estimates from a linear probability model (linear regression) with marginal effect estimates from probit and logit models.

My simulations show that when the true model is a probit or a logit, using a linear probability model can produce inconsistent estimates of the marginal effects of interest to researchers. The conclusions hinge on the probit or logit model being the true model.

**Simulation results**

For all simulations below, I use a sample size of 10,000 and 5,000 replications. The true data-generating processes (DGPs) are constructed using Read more…

We often use probit and logit models to analyze binary outcomes. A case can be made that the logit model is easier to interpret than the probit model, but Stata’s **margins** command makes any estimator easy to interpret. Ultimately, estimates from both models produce similar results, and using one or the other is a matter of habit or preference.

I show that the estimates from a probit and logit model are similar for the computation of a set of effects that are of interest to researchers. I focus on the effects of changes in the covariates on the probability of a positive outcome for continuous and discrete covariates. I evaluate these effects on average and at the mean value of the covariates. In other words, I study the average marginal effects (AME), the average treatment effects (ATE), the marginal effects at the mean values of the covariates (MEM), and the treatment effects at the mean values of the covariates (TEM).

First, I present the results. Second, I discuss the code used for the simulations.

**Results**

In Table 1, I present the results of a simulation with 4,000 replications when the true data generating process (DGP) satisfies the assumptions of a probit model. I show the Read more…

\(\newcommand{\Eb}{{\bf E}}\)This post was written jointly with Enrique Pinzon, Senior Econometrician, StataCorp.

The generalized method of moments (**GMM**) is a method for constructing estimators, analogous to maximum likelihood (**ML**). **GMM** uses assumptions about specific moments of the random variables instead of assumptions about the entire distribution, which makes **GMM** more robust than **ML**, at the cost of some efficiency. The assumptions are called moment conditions.

**GMM** generalizes the method of moments (**MM**) by allowing the number of moment conditions to be greater than the number of parameters. Using these extra moment conditions makes **GMM** more efficient than **MM**. When there are more moment conditions than parameters, the estimator is said to be overidentified. **GMM** can efficiently combine the moment conditions when the estimator is overidentified.

We illustrate these points by estimating the mean of a \(\chi^2(1)\) by **MM**, **ML**, a simple **GMM** estimator, and an efficient **GMM** estimator. This example builds on Efficiency comparisons by Monte Carlo simulation and is similar in spirit to the example in Wooldridge (2001). Read more…

**Overview**

In this post, I show how to use Monte Carlo simulations to compare the efficiency of different estimators. I also illustrate what we mean by efficiency when discussing statistical estimators.

I wrote this post to continue a dialog with my friend who doubted the usefulness of the sample average as an estimator for the mean when the data-generating process (DGP) is a \(\chi^2\) distribution with \(1\) degree of freedom, denoted by a \(\chi^2(1)\) distribution. The sample average is a fine estimator, even though it is not the most efficient estimator for the mean. (Some researchers prefer to estimate the median instead of the mean for DGPs that generate outliers. I will address the trade-offs between these parameters in a future post. For now, I want to stick to estimating the mean.)

In this post, I also want to illustrate that Monte Carlo simulations can help explain abstract statistical concepts. I show how to use a Monte Carlo simulation to illustrate the meaning of an abstract statistical concept. (If you are new to Monte Carlo simulations in Stata, you might want to see Monte Carlo simulations using Stata.) Read more…

**Overview**

A Monte Carlo simulation (MCS) of an estimator approximates the sampling distribution of an estimator by simulation methods for a particular data-generating process (DGP) and sample size. I use an MCS to learn how well estimation techniques perform for specific DGPs. In this post, I show how to perform an MCS study of an estimator in Stata and how to interpret the results.

Large-sample theory tells us that the sample average is a good estimator for the mean when the true DGP is a random sample from a \(\chi^2\) distribution with 1 degree of freedom, denoted by \(\chi^2(1)\). But a friend of mine claims this estimator will not work well for this DGP because the \(\chi^2(1)\) distribution will produce outliers. In this post, I use an MCS to see if the large-sample theory works well for this DGP in a sample of 500 observations. Read more…

I was recently talking with my friend Rebecca about simulating multilevel data, and she asked me if I would show her some examples. It occurred to me that many of you might also like to see some examples, so I decided to post them to the Stata Blog. Read more…