Specification Error and Bias
Specification error occurs when an independent variable is correlated with the error term. There are several different causes of specification error:
- incorrect functional form
- a variable omitted from the model may have a relationship with both the dependent variable and one or more of the independent variables (omitted-variable bias);
- an irrelevant variable may be included in the model
- the dependent variable may be part of a system of simultaneous equations (simultaneity bias)
- measurement errors may affect the independent variables.
Read more about this topic: Specification (regression)
Famous quotes containing the words error and/or bias:
“The logic of worldly success rests on a fallacy: the strange error that our perfection depends on the thoughts and opinions and applause of other men! A weird life it is, indeed, to be living always in somebody else’s imagination, as if that were the only place in which one could at last become real!”
—Thomas Merton (1915–1968)
“The solar system has no anxiety about its reputation, and the credit of truth and honesty is as safe; nor have I any fear that a skeptical bias can be given by leaning hard on the sides of fate, of practical power, or of trade, which the doctrine of Faith cannot down-weigh.”
—Ralph Waldo Emerson (1803–1882)