With this assignment you will find an Excel file called hprice.xls For reference, the variables in this file include (in addition to other variables):
price = house price, $1000s sqrft = size of house in square feet bdrms = number of bedrooms
- Run the following regression: price = ?0 + ?1*sqrft. Report the estimated equation:
- What is the estimated increase in price for a house with an additional square foot?
- Hypothesize the sign of the bias, if any, resulting from excluding bdrms from the regression. Explain your reasoning.
- Use STATA to verify (or not) your claim from c). Do this by comparing a model that compares a “complete” model and a model that omits bdrms. What does this say about the sign of the bias? What is the magnitude of the bias?
- Now find the magnitude and sign of the bias using the formula for bias that we discussed in class. Break down the bias into the component pieces (as we did in class) using actual numbers. Highlight any commands that you use in STATA.