Creating Index Measures
When to create an index measure
- When you have many ways of measuring a single concept
- This is true for outcome measures, treatment measures, and covariates
Benefits of index measures
- Simplifies analysis (fewer graphs, tables, etc.)
- Reduces number of hypotheses being tested
Additive Scale
What is an additive scale?
- Simple sum across columns (index = column_1 + column_2)
When to use an additive scale
- When variables are measured on a common scale
- When you are interested in a cumulative amount of something
- Number of times someone engaged in a specific behavior
- Amount of money from several different sources
Additive Scale
Benefits of additive scales
- Interpretability: number on the original scale
- Simplicity: Just plain addition
Averaged Z-Scores
What is a z-score?
- \(Z = (X - \mu) / \sigma\)
- Standardized: Mean of 0 and standard deviation of 1
When to use averaged z-scores
- When variables are measured on different scales
- When variables cannot be summed
Averaged Z-Scores
Benefits of averaged z-scores
- Interpretability: Standard deviations from the mean
- Outlier detection: abs(3)
Fancier index techniques
- Principal Component Analysis
- Factor Analysis
- Inverse Covariance Weighting
Interaction Terms
What is an interaction term?
- Simple linear models assume that the effect of predictors is independent of other factors
- Interaction terms allow us to estimate the difference in the slope of a predictor across unit characteristics
\[
Y_i = \alpha + \beta_1 X_{i1} + \beta_2 X_{i2} + \beta_3 X_{i1}*X_{i2} + \epsilon_i
\]
Interaction Terms
What are interaction terms used for?
- Heterogeneous effects
- Difference-in-differences
Example: Continuous outcome with two binary predictors
- \(\alpha\): Intercept when \(X_{i1}\) and \(X_{i2}\) are 0
- \(\beta_1\) Slope when \(X_{i2} = 0\)
- \(\beta_2\) Difference in \(\alpha\) between \(X_{i2}=0\) and \(X_{i2}=1\)
- \(\beta_3\) Difference in \(\beta_1\) between \(X_{i2}=0\) and \(X_{i2}=1\)