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Re: st: RE: Econometrics Theory Questions on Dummies and Correlation Analysis
To take Nick's example further, I think that Sam's point in a binary
outcome was that finding a mean equal to one of the two outcomes would
tell us the same thing as finding the variance equal to zero---and the
mean, in this case, would actually tell us more than the variance did!
On a more general basis, there is only one degree of freedom (once we
fix the number of observations) in a binary outcome variable, so
reporting both the mean and the variance is redundant. We choose the
mean because it is easily interpreted (especially when the binary
outcomes are 0 and 1) as the fraction of one outcome.
I recognize, though that this is a small eddy in the greater river of
discussion to which Nick refers.
On Apr 18, 2005, at 5:39 PM, Nick Cox wrote:
I agree that means and variances of non-binary nominal codes don't
usually make sense. The only exception I can think of is that zero
variance has a clearcut interpretation, namely that all observations
are in the same category. But you clearly don't need the variance to
tell you that, and I don't think this is a point at issue in this
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