Omitted variable bias exists if the omitted variable is
A) unrelated to the dependent variable or the independent variable.
B) related to the dependent variable, but unrelated to the independent variable.
C) related to the independent variable, but unrelated to the dependent variable.
D) related to both the independent variable and the dependent variable.

Question

Quizplus · Accepted Answer

Omitted variable bias occurs when the omitted variable is related to both the dependent variable and the independent variable. This can lead to falsely estimating the effect of the independent variable on the dependent variable. A and B are incorrect because if the omitted variable is unrelated to either the independent or dependent variable, it would not be responsible for the bias. C is incorrect because if the omitted variable is related to the independent variable but not the dependent variable, it would not be responsible for the bias in estimating the effect of the independent variable on the dependent variable.

Omitted Variable Bias Exists If the Omitted Variable Is