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♪ [music] ♪ - [Narrator] What is omitted variable bias? Its a type of selection bias that occurs in regression analysis when we dont include the right controls. Its easiest to show with an example. Perhaps you want to know what patterns are associated with higher pay at your job. Well, no big surprise, but academic achievement goes hand in hand with earning lots of money. And studies have shown that if you grow up in a house with lots of books on the shelves that you tend to do better in school. So books on the shelves cause you to do better at school, which leads to more pay. Easy enough! So simply add books to your shelves and youll make a lot more money. Do you think weve left out anything important? Or is the number of books on your shelves all that we need to consider when thinking about academic performance? What about the characteristics of your parents? Is it possible that a higher IQ of your parents would lead to both more books on your shelves and better academic achieve
