Latent Variables o Sometimes binary dependent variable models are motivated through a latent variables model e The idea is that there is an underlying variable y*, that can be modeled as )*=Bo+xB+e, but we only observe y=l, ify x>0, and y=0 ify* <0 Economics 20- Prof anderson 10Economics 20 - Prof. Anderson 10 Latent Variables Sometimes binary dependent variable models are motivated through a latent variables model The idea is that there is an underlying variable y*, that can be modeled as y* = b0 +xb + e, but we only observe y = 1, if y* > 0, and y =0 if y* ≤ 0