Omitted Variable Bias

Definition

Omitted variable bias occurs when a statistical model fails to include an important variable that is related to both the dependent and independent variables, leading to biased estimates of the relationship between them.

Related terms

Confounding Variable: A confounding variable is a factor that influences both the dependent and independent variables, making it difficult to determine their true relationship.

Multicollinearity: Multicollinearity refers to a situation where two or more independent variables in a regression model are highly correlated with each other.

Endogeneity: Endogeneity occurs when there is a bidirectional relationship between the dependent and independent variables, making it challenging to establish causality.