143 Visualisation misconception with interaction models

This video clarifies a common econometrics mistake: misinterpreting beta 3 as a constant group difference. We explore what the vertical distance between two regression lines actually measures, using a practical example with years of education and employment status. You'll learn why beta 3 represents the difference in slopes and how the gap between lines changes with the continuous variable. We visually decompose the gap into its fixed intercept shift and its growing component, which depends on the value of x. Understanding this distinction is crucial for accurate interpretation, especially in difference-in-difference or interaction models. Visit AxiomTutoring.com and subscribe to @AxiomTutoringCourses.