Suppose the true model is Y i = 1 + 2 X i + X
Question:
Suppose the true model is
Yi = β1 + β2Xi + βX2i + β3X3i + ui
But you estimate
Yi = α1 + α2Xi + vi
If you use observations of Y at X = −3, −2, −1, 0, 1, 2, 3, and estimate the “incorrect” model, what bias will result in these estimates?
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