When You Have an Omitted Variable Problem, the Assumption That

question 17

Multiple Choice

When you have an omitted variable problem, the assumption that E(u_i X_i) = 0 is violated. This implies that

• A)the sum of the residuals is no longer zero.
• B)there is another estimator called weighted least squares, which is BLUE.
• C)the sum of the residuals times any of the explanatory variables is no longer zero.
• D)the OLS estimator is no longer consistent.

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Expected Utility Function

A mathematical representation that calculates the overall utility that an individual can attain, based on different outcomes and their respective probabilities.

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A guaranteed payment or financial transaction where the receiver has complete certainty of receiving the specified amount.

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A form of gambling involving the drawing of numbers for a prize, often used as a method to allocate scarce resources such as green cards or in decision theory as a risk model.

Probability

A measure of the likelihood that an event will occur, quantified as a number between 0 and 1.