Week 8: Interaction Terms (02/29/2024)

Ozlem Tuncel

otuncelgurlek1@gsu.edu

⚠️ CAUTION: DO NOT SOLELY RELY ON MY NOTES. THERE MIGHT BE TYPOS AND MISTAKES. ALWAYS TAKE YOUR NOTES!

✔️ The goal of this week is to learn interaction terms.

Here are some key points:

• Interactions (or multiplicative term) are super common in the literature. They represent conditional relationships.
• In deciding whether to use interactions, you rely on theory (and that’s it!).
• 3 things to remember when you are modelling interactions: (1) include all constitutive terms, (2) interpret things correctly, and (3) coefficient estimates are not the whole story!
• We cannot interpret the coefficient of the consecutive terms as unconditional effect! When we have $\beta_1 X_1 + \beta_2 X_2 + \beta_3 X_3$, interpreting $\beta_1$ and $\beta_2$ when we have a coefficient. (Like we do with OLS, one unit increase …) Proof: partial derivative slides
• Depending on whether you have continuous or binary variable as constitutive term, your interpretation is going to change.