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Suppose That X1 Is Measured with Error β\beta 0 β\beta

Question 14

Multiple Choice

Suppose that X1 is measured with error.
Yi = β\beta 0 + β\beta 1X1i + ε\varepsilon i
Xi = X*1i + ν\nu i
In which of the following cases will the bias be most severe?


A) The variance of the independent variable ( σ\sigma x*) is much smaller than the variance of the error measurement error ( σ\sigma ν\nu ) .
B) The variance of the independent variable ( σ\sigma x*) is much larger than the variance of the error measurement error ( σ\sigma ν\nu ) .
C) The variance of the error measurement error ( σ\sigma ν\nu ) is zero.
D) There will be no bias.

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