What is the tradeoff researchers face when deciding how to deal with heteroskedasticity?
A)Goldfeld-Quandt overstates heteroskedasticity but LM leads to more Type I errors
B)White's robust estimator should be used for hypothesis testing,but GLS is better for interval estimation
C)GLS gives minimum variance,but results are more difficult to interpret
D)White's robust estimator requires no assumptions about the structure of the variance,but it is not as efficient as GLS estimates when the right structure is imposed on the variance

Question

Quizplus · Accepted Answer

When dealing with heteroskedasticity, the best choice is to use White's robust estimator which does not require any assumptions about the structure of the variance. However, if the right structure is known, imposing it on the variance can lead to more efficient estimates using GLS. However, GLS can also produce results that are harder to interpret, while White's estimator is more robust and easier to understand. Therefore, the best choice is D, which acknowledges the tradeoff between efficiency and robustness and the importance of the assumptions made about the variance structure.

What Is the Tradeoff Researchers Face When Deciding How to Deal