You Are Studying The Tradeoff Between Time Spent Sleeping
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You are studying the tradeoff between time spent sleeping and time spent working in a sample of individuals aged 23-65. Suppose the true model is:
sleep = β 0 + β 1 totwrk + β 2 age + u
where sleep and totwrk (total work) are measured in minutes per week and age is measured in years.
But rather than estimating the true model, you omit age:
sleep = α 0 + α 1 totwrk + u
Based on the estimates from the two regressions you ran in Stata, in what direction would you expect an OLS estimate of α 1 to be biased?
In reality, even the “true model” from the previous question:
sleep = β 0 + β 1 totwrk + β 2 age + u
may omit important variables. Name an additional omitted variable that may cause the OLS estimator of β 1 to be biased. Explain your reasoning.
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