Suppose That in Order to Estimate of the Average Effect

question 7

Multiple Choice

Suppose that in order to estimate of the average effect of participation in a job training program (train) on wage, you included controls for education (educ) , years of experience (exper) in your model: log(wage) = + + + + u . Which of the following is a reason why the coefficient, , might be biased?

• A)Exper is uncorrelated with train.
• B)Educ is likely correlated with both wage and train .
• C)Educ and exper are highly correlated with each other.
• D)There might be some other variable that is also correlated with both wage and train.

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Definitions:

Target Payoffs

Expected or desired financial returns from an investment strategy or economic activity.

Collusion

An agreement between firms, typically secret, to limit competition among themselves, such as by setting prices or output levels.

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A simplified drawing showing the appearance, structure, or workings of something in a conceptual or visual form.

Profits

The financial gain realized when the revenue earned from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.