Correlations and Nonlinear Probability Models

Abstract

Although the parameters of logit and probit and other nonlinear probability models (NLPMs) are often explained and interpreted in relation to the regression coefficients of an underlying linear latent variable model, we argue that they may also be usefully interpreted in terms of the correlations between the dependent variable of the latent variable model and its predictor variables. We show how this correlation can be derived from the parameters of NLPMs, develop tests for the statistical significance of the derived correlation, and illustrate its usefulness in two applications. Under certain circumstances, which we explain, the derived correlation provides a way of overcoming the problems inherent in cross-sample comparisons of the parameters of NLPMs.