What is the 'omitted variable' problem in determining cause and effect?
A)It is a problem that arises when an insignificant variable is given too much weight in an economic analysis, leading to skewed conclusions about cause and effect.
B)It is a problem that arises when a significant variable is not given enough weight in an economic analysis, leading to skewed conclusions about cause and effect.
C)It is a problem that arises when an insignificant economic variable that should have been omitted is included in an economic analysis, leading to false conclusions about cause and effect.
D)It is a problem that arises when an economic variable that affects other variables is omitted from an analysis, and its omission leads to false conclusions about cause and effect.

Question

Quizplus · Accepted Answer

The omitted variable problem arises when an important economic variable that affects the outcome of interest is not included in an analysis. This missing variable can lead to false conclusions about cause and effect relationships between the studied variables. It is not necessarily insignificant, so options A and C are incorrect. Option B is also incorrect as it suggests that an important variable is given too little weight, rather than being omitted entirely.

What Is the 'Omitted Variable' Problem in Determining Cause and Effect