Limited dependent variable - AbsoluteAstronomy.com

A limited dependent variable is a variable whose range of
possible values is "restricted in some important way." In econometrics

Econometrics

Econometrics has been defined as "the application of mathematics and statistical methods to economic data" and described as the branch of economics "that aims to give empirical content to economic relations." More precisely, it is "the quantitative analysis of actual economic phenomena based on...

, the term is often used when
estimation of the relationship between the limited dependent variable
of interest and other variables requires methods that take this
restriction into account. For example, this may arise when the variable
of interest is constrained to lie between zero and one, as in
the case of a probability

Probability

Probability is ordinarily used to describe an attitude of mind towards some proposition of whose truth we arenot certain. The proposition of interest is usually of the form "Will a specific event occur?" The attitude of mind is of the form "How certain are we that the event will occur?" The...

, or is constrained to be positive,
as in the case of wages or hours worked.

Limited dependent variable models include:

Censoring
Censored regression model
Censored regression models commonly arise in econometrics in cases where the variable ofinterest is only observable under certain conditions. A common example is labor supply. Data are frequently available on the hours worked by employees, and a labor supply model estimates the relationship between...

, where for some individuals in a data set, some data are missing but other data are present;

Truncation
Truncated regression model
Truncated regression models arise in many applications of statistics, for example in econometrics, in cases where observations with values in the outcome variable below or above certain thresholds systematically excluded from the sample...

, where some individuals are systematically excluded from observation (failure to take this phenomenon into account can result in selection bias
Selection bias
Selection bias is a statistical bias in which there is an error in choosing the individuals or groups to take part in a scientific study. It is sometimes referred to as the selection effect. The term "selection bias" most often refers to the distortion of a statistical analysis, resulting from the...

);

Discrete
Discrete
Discrete in science is the opposite of continuous: something that is separate; distinct; individual.Discrete may refer to:*Discrete particle or quantum in physics, for example in quantum theory...

outcomes, such as binary decisions or qualitative data restricted to a small number of categories. Discrete choice
Discrete choice
In economics, discrete choice problems involve choices between two or more discrete alternatives, such as entering or not entering the labor market, or choosing between modes of transport. Such choices contrast with standard consumption models in which the quantity of each good consumed is assumed...

models may have either unordered or ordered alternatives; ordered alternatives may take the form of count data or ordered rating responses (such as a Likert scale
Likert scale
A Likert scale is a psychometric scale commonly involved in research that employs questionnaires. It is the most widely used approach to scaling responses in survey research, such that the term is often used interchangeably with rating scale, or more accurately the Likert-type scale, even though...

).

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