162 Omitted variable bias direction

This video explains how to determine the sign of omitted variable bias in econometrics. You will learn how the bias is calculated and how to predict whether your estimated coefficients are too high or too low. This is essential for answering common exam questions about overestimation and underestimation. We break down the formula for omitted variable bias, showing that the sign of the bias depends solely on the sign of the coefficient of the omitted variable in the true model and the sign of the correlation between the included variable and the omitted variable. Practical examples involving education, ability, and job tenure are used to illustrate how economic reasoning can predict the direction of the bias. Understanding these concepts will help you confidently tackle econometrics problems. Visit AxiomTutoring.com and subscribe to @AxiomTutoringCourses.