13.14 Interaction terms

always include both terms without interaction:

otherwise, the coefficient on \(X \times Z\) accounts for not only the interaction between the two, but also the direct effect of Z itself.

• interpretation with marginal effects (using derivative)
• think very carefully about why you are including a given interaction term
• trying interactions all willy-nilly tends to lead to false positives
• be skeptical of an effect that isn’t there at all for the whole sample
• make sure you believe your story before you check the data