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Consider the econometric model price = Bo + B1raings + u. We estimate this model with OLS using a sample of Amazon products, for which we observe the price and the number of ratings. We know that: O If we assume homoskedasticity, the variance of B, equals the variance of the error term O If the number of ratings is very different across products (i.e. the variance of ratings is large), the variance of B, is smaller than it would be otherwise. O If, for a given number of ratings, the price is very different across products, the variance of B, is smaller than it would be otherwise. O The variance of B, is smaller when the variance of u is higher

Consider the econometric model price = Bo + B1raings + u. We estimate this model with OLS using a sample of Amazon products, for which we observe the price and the number of ratings. We know that: O If we assume homoskedasticity, the variance of B, equals the variance of the error term O If the number of ratings is very different across products (i.e. the variance of ratings is large), the variance of B, is smaller than it would be otherwise. O If, for a given number of ratings, the price is very different across products, the variance of B, is smaller than it would be otherwise. O The variance of B, is smaller when the variance of u is higher

Linear Algebra: A Modern Introduction
Linear Algebra: A Modern Introduction
4th Edition
ISBN:9781285463247
Author:David Poole
Publisher:David Poole
Chapter7: Distance And Approximation
Section7.3: Least Squares Approximation
Problem 31EQ
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Consider the econometric model price = Bo + Braings + u. We estimate this model with OLS using a sample of Amazon products, for which we observe the price and the number of ratings. We know that: O If we assume homoskedasticity, the variance of B, equals the variance of the error term O If the number of ratings is very different across products (i.e. the variance of ratings is large), the variance of B, is smaller than it would be otherwise. O If, for a given number of ratings, the price is very different across products, the variance of Bo is smaller than it would be otherwise. O The variance of B, is smaller when the variance of u is higher
Transcribed Image Text:Consider the econometric model price = Bo + Braings + u. We estimate this model with OLS using a sample of Amazon products, for which we observe the price and the number of ratings. We know that: O If we assume homoskedasticity, the variance of B, equals the variance of the error term O If the number of ratings is very different across products (i.e. the variance of ratings is large), the variance of B, is smaller than it would be otherwise. O If, for a given number of ratings, the price is very different across products, the variance of Bo is smaller than it would be otherwise. O The variance of B, is smaller when the variance of u is higher
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