Question: 5. In Section 7.6, there was a variable s representing strength of preference from which an ordinal variable was constructed. The Hausman test was then

5. In Section 7.6, there was a variable s representing strength of preference from which an ordinal variable was constructed. The Hausman test was then performed which led to the conclusion that subjects were truthfully reporting

“strength of preference”. This was not, in fact, surprising since the variable s was generated as the actual strength of preference in the simulation. There are two different measures of strength of preference in the data: s_poor and s_bad

(respectively partially and completely false representations of the truth). Carry out the Hausman test with each of these measures. Draw a conclusion regarding the power of the test.1. In Section 9.3.4, a Monte Carlo study was conducted in which the impact of unobserved heterogeneity on the estimation of the binary probit model was assessed. Conduct a similar exercise for the two-limit Tobit model, of the type used in Sections 6.6 and 8.5 for the modelling of contributions in public goods experiments. How serious are the consequences of neglecting heterogeneity in this setting?

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