If the measurement error is in the independent variable, then
A) We don't need to worry about bias, the measurement error will be reflected in the error term.
B) The bigger the measurement error, the bigger the variance of the error term.
C) We will have a case of attenuation bias, where the coefficient will be closer to 0 than it should be.
D) We will have a case of attenuation bias, where the coefficient is larger than it should be.

Question

Quizplus · Accepted Answer

If there is measurement error in the independent variable, it will cause the coefficient estimate to be biased towards zero, which is known as attenuation bias. This happens because the measurement error adds noise to the data and reduces the correlation between the independent variable and the dependent variable.

If the Measurement Error Is in the Independent Variable, Then