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

question 139

Multiple Choice

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.

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Definitions:

Intrinsic Value

The inherent worth of a company, stock, or other financial asset, determined through fundamental analysis without reference to its market value.

Going Public

The act of selling stock to the public at large by a closely held corporation or its principal shareholders.

Primary Market

The financial market where new securities are issued and sold for the first time to investors, facilitating funds raising for corporations and governments.

Investment Banker

A professional who advises and assists companies on capital market transactions like IPOs, mergers, and acquisitions.