Omitted Variable Bias (OVB)
• “For causal inference, a major goal is to get unbiased
estimates of the regression coefficients. And for nonexperimental data, the most important threat to that goal is
omitted variable bias.” (Paul Allison, 2014)
Omitted Variable Bias (OVB)
• OVB occurs when relevant X variable is not included in the
regression model, which is correlated with one or more
covariates in the model and response variable.
Omitted variable bias
X (e.g.
education)
Y (e.g. earnings)
Omitted variables
(e.g. ability, or
motivation)
! Must be correlated with one or more explanatory variables AND response variable
Omitted variable bias formula
Upward or downward bias?