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Including Prior Information in Probit Model Estimation

Author

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  • William E. Griffiths
  • R. Carter Hill
  • Christopher J. O'Donnell

Abstract

The effects of including different kinds of prior information in estimation of the probit model is examined within the framework of Bayesian inference. Of interest is the effect on posterior information for coefficients, probabilities and elasticities. In a model designed to explain choice between fixed and variable interest-rate mortgages, we show that using Bayesian inference to include inequality information on the signs of coefficients yields inferences about probabilities and elasticities that are substantially different from those obtained using maximum likelihood estimation. In a second model, concerned with state voting behavior, we find that putting prior information on probabilities, rather than coefficients, has a dramatic effect on the posterior density functions for the model coefficients, probabilities and elasticities.

Suggested Citation

  • William E. Griffiths & R. Carter Hill & Christopher J. O'Donnell, 2001. "Including Prior Information in Probit Model Estimation," Department of Economics - Working Papers Series 816, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:816
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    File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-00-01/816.pdf
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    References listed on IDEAS

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    3. 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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    5. Amemiya, Takeshi, 1981. "Qualitative Response Models: A Survey," Journal of Economic Literature, American Economic Association, vol. 19(4), pages 1483-1536, December.
    6. Kleibergen, Frank & van Dijk, Herman K., 1998. "Bayesian Simultaneous Equations Analysis Using Reduced Rank Structures," Econometric Theory, Cambridge University Press, vol. 14(6), pages 701-743, December.
    7. Geweke, John F. & Keane, Michael P. & Runkle, David E., 1997. "Statistical inference in the multinomial multiperiod probit model," Journal of Econometrics, Elsevier, vol. 80(1), pages 125-165, September.
    8. John Geweke, 1999. "Using Simulation Methods for Bayesian Econometric Models," Computing in Economics and Finance 1999 832, Society for Computational Economics.
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    Cited by:

    1. Francisco-José Polo & Miguel Negrín & Xavier Badía & Montse Roset, 2005. "Bayesian regression models for cost-effectiveness analysis," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 6(1), pages 45-52, March.

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