Econ Simulations

Omitted Variable Bias

Omitted Variable Bias (OVB) is the bias in a regression estimator that arises when there is a variable () which is not included in the regression that is correlated with the regressor () and is a determinant of the outcome (). In the regression model where is omitted from the regression estimation, the OVB is described as the final term in the following expression:

We are studying the relationship between test score and study hours:

Choose Population Parameters:

, the Coefficient on Study Hours:

, the Coefficient on Sleep Hours:

Set the Correlation between Study Hours and Sleep Hours:

Covariance between Study Hours and Sleep Hours: 0.00

Estimate Regression Using Test Score and Study Hours Data