a) The OLS estimator for β is possibly not consistent as the variable di may be endogenous.

Clearly explain why this may be the case. Indicate whether your reason would lead OLS to
overestimate or underestimate the true effect of the diet.
There is a lot of diet and there no unified technique to choose the diet, so people select by
themselves in what diet to take and should they. First, the lifestyle decision can determine
follow the diet or not. Also, it depends on quality of life and its style the change of weight during
the time

b) Rephrase these two conditions in words in the context of this application for the above-
mentioned advertising variable
Advertisement company take in consideration different criteria of scope group, and advertising
must not be dependent on health or weight criteria. As we agreed that these criteria depend on
lifestyle of everyone. Regions during advertisement campaign should not be selected based on
the average weight, since this can be biased, and we see that the decision to follow diet comes
from lifestyle mainly. Finally, advertisement campaign should be effective. We see that
probability of people took diet is almost in same level in regions where advertisement
conducted and were not. The probability of following the diet should be higher in regions in
which the diet was promoted.
c) For both assumptions in (b), indicate whether it can be tested statistically given the available
variables. If yes, indicate how. If no, why not? Both yes and no!
a. We cannot say for sure that it can be tested statistically with available variables and we
would need to have more instruments to have clear picture.
b. We should create a model for di with Zi, yi and xi as explanation variables and test
whether Zi is significant. To achieve this we need more instruments.
1 𝑍𝑍1 1 𝑑𝑑1
1 𝑍𝑍2 1 𝑑𝑑2
d) 𝑍𝑍 = � � and 𝑍𝑍 = � �
⋮ ⋮ ⋮ ⋮
1 𝑍𝑍𝑛𝑛 1 𝑑𝑑𝑛𝑛
𝑛𝑛 � 𝑑𝑑𝑖𝑖 1 � 𝑍𝑍𝑖𝑖 𝑑𝑑𝑖𝑖 − � 𝑑𝑑𝑖𝑖 � 𝑦𝑦𝑖𝑖
(𝑍𝑍′𝑋𝑋)−1 𝑍𝑍 ′ 𝑦𝑦 = � �= � �� �
� 𝑍𝑍𝑖𝑖 � 𝑍𝑍𝑖𝑖 𝑑𝑑𝑖𝑖 𝑛𝑛 ∑ 𝑍𝑍𝑖𝑖 𝑑𝑑𝑖𝑖 − ∑ 𝑍𝑍𝑖𝑖 ∑ 𝑑𝑑𝑖𝑖 − � 𝑍𝑍 𝑛𝑛 � 𝑍𝑍𝑖𝑖 𝑦𝑦𝑖𝑖
𝑖𝑖

1 1 1
𝑛𝑛 ∑ 𝑍𝑍𝑖𝑖 𝑦𝑦𝑖𝑖 − ∑ 𝑍𝑍𝑖𝑖 ∑ 𝑦𝑦𝑖𝑖 ∑ 𝑍𝑍𝑖𝑖 𝑦𝑦𝑖𝑖 − 𝑛𝑛 ∑ 𝑍𝑍𝑖𝑖 ∑ 𝑦𝑦𝑖𝑖 ∑ 𝑍𝑍𝑖𝑖 ∑ 𝑍𝑍𝑖𝑖 𝑦𝑦𝑖𝑖 − 𝑛𝑛 ∑ 𝑦𝑦𝑖𝑖
𝛽𝛽̂ = = = = (∆′ − ∆)/(𝑑𝑑�′ − 𝑑𝑑̅)
𝑛𝑛 ∑ 𝑍𝑍𝑖𝑖 𝑑𝑑𝑖𝑖 − ∑ 𝑍𝑍𝑖𝑖 ∑ 𝑑𝑑𝑖𝑖 ∑ 𝑍𝑍 𝑑𝑑 − 1 ∑ 𝑍𝑍 ∑ 𝑑𝑑 1 1
∑ 𝑍𝑍𝑖𝑖 𝑑𝑑𝑖𝑖 − ∑ 𝑑𝑑𝑖𝑖
𝑖𝑖 𝑖𝑖 𝑛𝑛 𝑖𝑖 𝑖𝑖 ∑ 𝑍𝑍𝑖𝑖 𝑛𝑛