Of the remedies for an interpolation/extrapolation identification problem, which requires the most trust in the assumptions surrounding the data generation process?
A) Use probit/logit to alleviate the data gaps.
B) Collect more/alternative data to close the data gap, extent of the data.
C) Use two-stage least squares to interpolate/extrapolate.
D) Use functional form choices to interpolate/extrapolate.

Question

Quizplus · Accepted Answer

Functional form choices for interpolation/extrapolation require the most trust in the assumptions surrounding the data generation process because they involve making specific assumptions about the relationship between variables that may not be directly supported by the data. This approach relies heavily on the theoretical framework and the researcher's understanding of the underlying processes, which can introduce significant bias if the assumptions are incorrect.

Of the Remedies for an Interpolation/extrapolation Identification Problem, Which Requires