Business & Finance

Which of the following is FALSE regarding dummy variables?

1. They can only every take the values of either 1 or 0.

2. They can be used as dependent and/or independent variables.

3. The category we exclude is important because it determines how we interpret the estimated coefficient(s).

4. We should never exclude any categories of an independent variable as it will cause us to have omitted variables, causing the coefficients to be biased.