Why it matters
An apparent relationship can partly reflect an unmeasured factor. Identifying which relevant factors also relate to the explanatory variable is crucial for interpretation.
A worked example
A wage–education regression that omits a relevant ability measure can attribute some associated differences to education if ability also relates to education.
Illustrative example · simplified assumptionsA common mistake
Adding any available variable and assuming the causal problem is solved.
Where the idea needs care
An omitted variable does not always create bias in every coefficient; the relationship to included variables matters.
Apply the idea
Explain this concept using a different example from your spending, work, business or a policy debate. State what stays fixed and what could change the result.
Sources and further study
Examples and explanations by Alibomics. Numeric illustrations are not current market quotations.