Question

0. Suppose you are interested in estimating the effect of hours per week spent studying (study) on

   university grade point average (gpa) for first-year students; the model is ??? = ?₀ + ?₁????? + ?. One of the factors contained in u in the regression above is the student's major concentration.

   1. How is the omitted factor you chose likely to be correlated with ??????

   2. How is the omitted factor you chose likely to be correlated with ????

   3. Using these two correlations, how do you expect ?( is likely to be biased? (i.e. is it biased

      upwards or downwards?)

Answer 1

1. Student's major concentration is positively correlated with the study. If student will lack concentration then he won't be able to focus on studies as it leads to distraction. So better concentration helps in studying effectively.

2. Student's major concentration is positively correlated with the GPA. If student would be concentrated towards studying, he would be away from distractions therefore would score good and higher GPA.

3. Using these two correlations ( correlation of study and GPA with student's major concentration), B is likely to be biased upwards.

Because if both the correlations are positive, then omitted variable bias will be upward direction.