Suppose You Are a Potential College Student That Is Interested

question 4

Essay

Suppose you are a potential college student that is interested in determining whether it is worthwhile to declare a certain major.In an effort to find the answer,you collect data on 1,247 college who majored in HUMANITIES,SCIENCE,ENGINEERING,or ENGLISH and you estimate the sample regression function (standard errors in parentheses) $$\begin{array} { lllllll } log ~\widehat {Sal}ary _ { i } =& 13.81 + &0.03 \text { GPA } _ { i } + &0.02 \log \text { StudyHours } _ { i } +& 0.01 \text { Science } _ { i } + &0.08 \text { Engineering } _ { i } +& 0.02 \text { English } _ { i } \\& (2.97)& (0.0005)& (0.00003)&( 0.02 ) & ( 0.025 ) & ( 0.001 )\end{array}$$
a)Do you think omitted variable bias is a potential problem in this case? Why? Explain.
b)What is the problem associated with omitted variable bias? Explain.
c)How might you control for the potential omitted variable bias in this case? Explain.

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Definitions:

Annual Dividend

The total dividend payment a shareholder receives from a stock or investment in a year, expressed on a per-share basis.

Market Value

The instant price at which transactions for a service or asset can be made.

Required Return

The minimum yearly interest rate that entices both individuals and companies to invest in a specific security or endeavor.

Share Dividend

A dividend payment made in the form of additional shares rather than a cash payout, often opted by a company to conserve cash.