Which assumption must be true when E(e|x)= 0? A)E(e)= 0 and var(e)= $\sigma$² B)e = 0 C)E(e)= 0 and cov(x,e)= 0. D)E(e)= e|x if x≠0

Question

Quizplus · Accepted Answer

When E(e|x) = 0, it means that the error term e is unrelated to the predictor variables x, or in other words, there is no linear relationship between x and e. This implies that cov(x,e) = 0 because the covariance between two variables is 0 if they are not linearly related. Additionally, the assumption of E(e) = 0 still holds. Therefore, choice C is the best answer.

Which Assumption Must Be True When E(e|x)= 0? A)E(e)= 0 σ\sigmaσ

Which Assumption Must Be True When E(e|x)= 0?
A)E(e)= 0 $\sigma$