Omitted variable bias occurs when one does not include
A)an independent variable that is correlated with the dependent variable only.
B)an independent variable that is correlated with the dependent variable and an included independent variable.
C)an independent variable that is correlated with an included independent variable only.
D)a dependent variable that is correlated with an included independent variable.

Question

Quizplus · Accepted Answer

Omitted variable bias occurs when there is a failure to include a relevant independent variable in a regression model. This leads to the estimated coefficients of the included independent variables being biased and inconsistent. In option B, the omitted independent variable is correlated with both the dependent variable and an included independent variable, leading to the bias. In options A, C, and D, the omitted variable is either correlated only with the dependent variable, an included independent variable, or is a second dependent variable, which may not necessarily cause the omitted variable bias.

Omitted Variable Bias Occurs When One Does Not Include