6 14For bungee to be a valid proxy for riskaverse, itmust beCorrelated with price and uCorrelated with riskaverse and priceshould contain additional information onriskaverseCorrelated with price and riskaverseCorrelated with riskaver se and priceshould contain no additional information onriskaverse15Which of the following statements is correct if there israndom measurement error in the dependent variabley?OLS estimates will be biasedHypothesis tests will be invalidOLS estimates will be inconsistentStandard errors will be larger Proxy VariablesThe following equation relates a binary indicator forhaving health insurance coverage to price and a binaryindicator for being averse to risk:insured =Bo + Bıprice + Bariskaverse + uSuppose that data on riskaverse is not available butdata on bungee is available. The variable bungee is one ifthe person has done bungee jumping at least once in thepast 6 months and zero otherwise.13For bungee to be a valid proxy for riskaverse, itmust beUncorrelated with the error termUncorrelated with B2Uncorrelated with risk averseUncorrelated with price

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Answered: 13 For bungee to be a valid proxy for…

13 For bungee to be a valid proxy for riskaverse, it must be Uncorrelated with the error term Uncorrelated with B2 Uncorrelated with risk averse Uncorrelated with price

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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