Re: st: RE: Econometrics Theory Questions on Dummies and Correlation Analysis

[Chris Ruebeck <ruebeckc@lafayette.edu>]

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.

Chris

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 
> thread.
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