by What makes most econometric models invalid The assumption of additivity and linearity means that the outcome variable is, in reality, linearly related to any predictors … and that if you have several predictors then their combined effect is best described by adding their effects together … This assumption is the most important because if it is not true then even if all other assumptions are met, your model is invalid because you have described it incorrectly. It’s a bit like calling your pet cat a dog: you can try to get it to go in a kennel, or to fetch sticks, or to sit when you tell it to, but don’t be surprised when its behaviour isn’t what you expect because even though you’ve called it a dog, it is in fact a cat. Similarly, if you have described your statistical model inaccurately it won’t behave itself and there’s no point in interpreting its parameter estimates or worrying about significance tests of confidence intervals: the model is wrong.
Topics:
Lars Pålsson Syll considers the following as important: Statistics & Econometrics
This could be interesting, too:
Lars Pålsson Syll writes Monte Carlo simulation explained (student stuff)
Lars Pålsson Syll writes The importance of ‘causal spread’
Lars Pålsson Syll writes Applied econometrics — a messy business
Lars Pålsson Syll writes Feynman’s trick (student stuff)
What makes most econometric models invalid
The assumption of additivity and linearity means that the outcome variable is, in reality, linearly related to any predictors … and that if you have several predictors then their combined effect is best described by adding their effects together …
This assumption is the most important because if it is not true then even if all other assumptions are met, your model is invalid because you have described it incorrectly. It’s a bit like calling your pet cat a dog: you can try to get it to go in a kennel, or to fetch sticks, or to sit when you tell it to, but don’t be surprised when its behaviour isn’t what you expect because even though you’ve called it a dog, it is in fact a cat. Similarly, if you have described your statistical model inaccurately it won’t behave itself and there’s no point in interpreting its parameter estimates or worrying about significance tests of confidence intervals: the model is wrong.
