When making functional form choices to alleviate an interpolation/extrapolation identification challenge the justification will almost always take what form?
A) A calculation of difference of means across sub-samples of the data
B) Theoretical argument
C) A hypothesis test
D) A p-value from a test statistic

Question

Quizplus · Accepted Answer

Theoretical argument is the best choice for justifying functional form choices to alleviate an interpolation/extrapolation identification challenge. Theoretical arguments can provide a solid foundation for selecting a particular functional form, especially when there is a strong theoretical framework available. This can help to justify the use of a particular functional form even in situations where interpolation or extrapolation may be challenging. Other options such as calculating differences of means or performing hypothesis tests are not applicable for justifying functional form choices in this context. A p-value from a test statistic may be useful in some cases, but it is not always necessary or appropriate.

When Making Functional Form Choices to Alleviate an Interpolation/extrapolation Identification