Re: st: cascading dummies

[Richard Goldstein <richgold@ix.netcom.com>]

Hi,

neither is wrong or right -- they answer slightly different questions; A
asks for each dummy whether, and by how, much it is different from the
reference group (you do realize that you should only include 4 of the
dummies, right?); B asks whether each differs from the preceding level

you can -findit cascade- to find a program I wrote to implement
cascading dummies; the help file, and even more the STB article,
discusses the differences; note that you can obtain the answer to either
question by following up the original method of forming the variables
with the appropriate -test- command(s)

Rich

On 10/1/12 2:31 PM, Shikha Sinha wrote:
> Hi all,
> 
> Recently, I came across a new way of creating dummies and I wonder
> what the group thinks about this form.
> 
> The independent variable X is coded as 1- very poor, and 5 as very
> rich. I want to estimate the effect by wealth quintile. I created the
> dummy the following ways, but I was told that this is wrong (A is
> wrong). The correct way to construct dummy is B and is called
> cascading dummies. I have never come across this before and would
> appreciate if you could shed light on the difference between the two
> and which is the correct way of creating dummies.
> 
> A:							
> id	Y	X1 (scale of 1-5), 	dum1	dum2	dum3	dum4	dum5
> 1	100	5	0	0	0	0	1
> 2	200	4	0	0	0	1	0
> 3	300	3	0	0	1	0	0
> 4	239	2	0	1	0	0	0
> 5	345	1	1	0	0	0	0
> 
> 
> B:							
> id	Y	X1 (scale of 1-5),	dum1	dum2	dum3	dum4	dum5
> 1	100	5	1	1	1	1	1
> 2	200	4	1	1	1	1	0
> 3	300	3	1	1	1	0	0
> 4	239	2	1	1	0	0	0
> 5	345	1	1	0	0	0	0
> 
> Thanks,
> Shikha
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