At a mathematical level, if the two conditions for omitted variable bias are satisfied, then A)E(u_i | X₁_i, X₂_i,..., X_ki)? 0. B)there is perfect multicollinearity. C)large outliers are likely: X₁_i, X₂_i,..., X_ki and Y_i and have infinite fourth moments. D)(X₁_i, X₂_i,..., X_ki,Y_i), i = 1,..., n are not i.i.d. draws from their joint distribution.

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Quizplus · Accepted Answer

Omitted variable bias occurs when a model is missing one or more relevant variables. The bias is present if the omitted variable is both correlated with the included independent variables and a determinant of the dependent variable. The condition described in choice A, although presented in a complex notation, implies a non-zero expectation of the error term given the included variables, which is consistent with the presence of omitted variable bias.

At a Mathematical Level, If the Two Conditions for Omitted