Suppose you are estimating the following model: Y_i = β₀ + β₁X_i + U_i. Suppose also that you only observe values of Y that are above 50. What is the consequence of this selection on the values of Y? A) Your estimate for β₁ will be biased. B) Your model will suffer from the heteroscedasticity problem. C) Your estimate for β₁ will be biased and your model will suffer from the heteroscedasticity problem. D) None of the answers is correct.

Question

Quizplus · Accepted Answer

The selection of values of Y that are above 50 creates a sample selection bias, which can lead to biased estimates for coefficients. In this case, since we are only observing values of Y that are above 50, we are missing information on the lower end of the distribution. This can lead to biased estimates for the coefficient on the interaction term β₁X_i, which may have a different effect on values of Y below 50. The selection of values of Y above 50 does not necessarily cause the heteroscedasticity problem.

Suppose You Are Estimating the Following Model: Yi = β0

Suppose You Are Estimating the Following Model: Y_i = β₀