So I understand that dummy variables and binary variables are not the same thing. Here are my definitions of both (please correct if I am wrong):
- Dummy: Categorizes variables that don’t have any relationship with each other with the numbers 0 or 1.
- Binary: Any variable that has only 2 values.
However, I cant think of a example where something is only a binary variable but not a dummy variable?
Eg. If I code 0 as Caucasian, 1 as African American, this is a binary variable because it only can be 2 values. However, I'm pretty sure this is also a dummy variable even though they do have a relationship with each other (race)?
Eg 2. Even if you do the classic example of 0 = male, 1 = female, this is a binary variable because it only can be 2 values. However, I'm pretty sure this is also a dummy variable even though they do have a relationship with each other (gender)?