1. 1 Project I The Challenger Disaster

2. 2 What to do with the zeros?

3. 3

4. 4 Never Throw Away Data

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6. 6 Which is the greater sin, (1) throwing away data or running a biased regression?

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8. 8 Two Regression Approaches Probability Models: Qualitative dependent Probability Models: Qualitative dependent Linear probability model Linear probability model Non-linear Non-linear Probit Probit logit logit Number Models: Quantitative dependent Number Models: Quantitative dependent OLS, biased OLS, biased Tobit: extension of probit Tobit: extension of probit Count models Count models Poisson Poisson

9. 9 Probability Models One or more failures per launch coded as 1 One or more failures per launch coded as 1 Zero failures per launch coded as 0 Zero failures per launch coded as 0

10. 10 Low Temperature: 6 launches with failures out of 12 cases High Temperature: 1 launch with failure out of12 cases

11. 11 1.645 -34.7 5%

12. 12 H 0 : p(low temp) = p(high temp) Binomial Prob(k≥5) in 12 Trials, Given p = 2/12 Power 10

13. 13 Power 10 Probability 5 or more fail = 0.036

14. 14 Ex Post: the event either happens (code 1) or does not (code 2)

15. 15 Ex Ante: what is the probability the event will happen?

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19. 19 Is there another factor besides temperature?

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21. 21 Who Me Worry? The Culture at NASA: getting away with problems that should be fixed The Culture at NASA: getting away with problems that should be fixed O-rings O-rings Foam Foam NASA may not have been so worried about o-ring failures. They had experienced successful returns of the shuttle with as many as three o-ring failures NASA may not have been so worried about o-ring failures. They had experienced successful returns of the shuttle with as many as three o-ring failures

22. 22 Quantitative Models

23. 23 2 obs. 1 obs.

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27. 27 Check List Data Data Plots Plots 7 launches with failures 7 launches with failures 24 launches 24 launches Linear probability model, logit or probit Linear probability model, logit or probit # of O-Ring failures per launch, OLS, Tobit, Poisson # of O-Ring failures per launch, OLS, Tobit, Poisson Estimation Results, Labeled Estimation Results, Labeled Goodness of fit Goodness of fit Significance: t-stat, F-stat Significance: t-stat, F-stat

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