6.5 Comparing the CEF, BLP, and Regression

As it turns out, the BLP is \(Y=-\frac{5}{3}+10X\).

CEF <- function(X) {  10 * X^2 }
BLP <- function(X) {  - 5 / 3 + 10 * X}

Let’s plot both the CEF and BLP.

plot(NA,type="n", xlab="X", ylab="Y", xlim=c(0, 1), ylim=c(-2, 10), 
     main="Plot CEF and BLP")
lines(c(0:100)/100, CEF(c(0:100)/100), col="black", lwd=2)
lines(c(0:100)/100, BLP(c(0:100)/100), col="red", lwd=2)