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Mixture of normals probit models

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  • John Geweke
  • Michael P. Keane

Abstract

This paper generalizes the normal probit model of dichotomous choice by introducing mixtures of normals distributions for the disturbance term. By mixing on both the mean and variance parameters and by increasing the number of distributions in the mixture these models effectively remove the normality assumption and are much closer to semiparametric models. When a Bayesian approach is taken, there is an exact finite-sample distribution theory for the choice probability conditional on the covariates. The paper uses artificial data to show how posterior odds ratios can discriminate between normal and nonnormal distributions in probit models. The method is also applied to female labor force participation decisions in a sample with 1,555 observations from the PSID. In this application, Bayes factors strongly favor mixture of normals probit models over the conventional probit model, and the most favored models have mixtures of four normal distributions for the disturbance term.

Suggested Citation

  • John Geweke & Michael P. Keane, 1997. "Mixture of normals probit models," Staff Report 237, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:237
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    References listed on IDEAS

    as
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    2. John Geweke, "undated". "Posterior Simulators in Econometrics," Computing in Economics and Finance 1996 _019, Society for Computational Economics.
    3. repec:cup:etheor:v:13:y:1997:i:1:p:32-51 is not listed on IDEAS
    4. Geweke, John & Keane, Michael P & Runkle, David, 1994. "Alternative Computational Approaches to Inference in the Multinomial Probit Model," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 609-632, November.
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