Heterogeneous skewness in binary choice models: Predicting outcomes in the men's NCAA basketball tournament

Abstract

Several authors have recently explored the estimation of binary choice models based on asymmetric error structures. One such family of skewed models is based on the exponential generalized beta type 2 (EGB2). One model in this family is the skewed logit. Recently, McDonald (1996, 2000) extended the work on the EGB2 family of skewed models to permit heterogeneity in the scale parameter. The aim of this paper is to extend the skewed logit model to allow for heterogeneity in the skewness parameter. By this we mean that, in the model developed, here the skewness parameter is permitted to vary from observation to observation by making it a function of exogenous variables. To demonstrate the usefulness of our model, we examine the issue of the predictive ability of sports seedings. We find that we are able to obtain better probability predictions using the skewed logit model with heterogeneous skewness than can be obtained with logit, probit, or skewed logit.