We are researching the charity donation behaviour of Australians. We have the following model: (E1) Donate = β0 + β1Income +β2Avg_Gift + β3Edu + u Where: Donate is a dummy variable equal to 1 if the individual makes a donation in response to a social media campaign by our charity organisation, and 0 otherwise Income is the annual household income Avg_Gift is the average value of past donations made by the individual to our charity Educ is the individual's level of education (in years) Our data is a random sample of the population and we have 1,614 observations. You should assume E [u | Income, Avg_Gift, Educ] = 0. Using the information above, please answer the following 3 questions. [i] Referring to Model (E1) above, interpret the coefficient β1.  [ii] You know that this model will suffer from heteroskedasticity. Why is this the case? Explain your reasoning.  [iii] In your own words, what is heteroskedasticity?

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We are researching the charity donation behaviour of Australians. We have the following model:

(E1) Donate = β0 + β1Income +β2Avg_Gift + β3Edu + u

Where:

  • Donate is a dummy variable equal to 1 if the individual makes a donation in response to a social media campaign by our charity organisation, and 0 otherwise
  • Income is the annual household income
  • Avg_Gift is the average value of past donations made by the individual to our charity
  • Educ is the individual's level of education (in years)

Our data is a random sample of the population and we have 1,614 observations. You should assume E [u | Income, Avg_Gift, Educ] = 0.

Using the information above, please answer the following 3 questions.

[i] Referring to Model (E1) above, interpret the coefficient β1. 

[ii] You know that this model will suffer from heteroskedasticity. Why is this the case? Explain your reasoning. 

[iii] In your own words, what is heteroskedasticity? 

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