ABSTRACT
This chapter discusses use of dummy variables to examine the differences between groups and interpretation of the coefficients for dummy variables. It describes the use and interpretation of the product of a dummy variable and a quantitative variable. The most common measure of batting skill is the batting average, which is the ratio of hits to total at-bats. The batting average is a crude index. By weighting singles and home runs the same, it ignores the added productivity from hits of more than a single base. Members of the Society for American Baseball Research have studied a variety of combinations of on-base percentage and slugging percentage in the hope of generating a single statistic that will capture a batter’s contribution. An efficient labor market for baseball players would, all other factors held constant, reward on-base percentage and slugging percentage in the same proportion that those statistics contribute to winning.
