Question: Consider the following MLR model as the true population model (i.e. MLR.1-MLR.5hold) final = 0+ 1 HoursStudied + 2 ability + u (3) Where final

Consider the following MLR model as the true population model (i.e. MLR.1-MLR.5hold)

final=0+1HoursStudied+2ability+u(3)

Where final is student's final exam score, HoursStudied is the number of hours a student prepared for the final exam, and ability is the student's natural talent in the subject material of the course. Due to lack of data, suppose we estimate the following misspecified SLR instead:

final=0+1HoursStudied+v(4)

We postulate that2>0. We will further assume the correlation between HoursStudied and ability is negative (that is, we will assume that the stronger someone naturally is in a subject,the less they need to study for it).

Taking the above as given, and letting 1 denote our estimate of1 from model (4) and b1 denote our estimate of1 from model (3), which of the following is true?

A.b1 is unbiased.1 is biased & specifically it is overestimating 1 on average.

B.b1 is biased.1 is biased & specifically it is overestimating 1 on average.

C.b1 is unbiased.1is biased & specifically it is underestimating 1 on average.

D.b1 is biased.1 is biased & specifically it is underestimating 1 on average.

E.None of the above

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