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Multicollinearity causing risk and uncertainty

Alexia Gaudeul writes:

Maybe you will find this interesting / amusing / frightening, but the Journal of Risk and Uncertainty recently published a paper with a rather obvious multicollinearity problem.

The issue does not come up that often in the published literature, so I thought you might find it interesting for your blog.

The paper is:

Rohde, I. M., & Rohde, K. I. (2015). Managing social risks–tradeoffs between risks and inequalities. Journal of Risk and Uncertainty, 51(2), 103-124.

The authors report very nicely all the elements that would normally indicate to a reviewer that there is something wrong. I got the data from the authors to run my own tests, which I [Gaudeul] report here.

I haven’t looked into this in detail but I thought I’d post it because there’s this scandal in econ that’s somehow all about process and little about substance, and tomorrow I have a post on that, so I thought it was worth preceding it with an example that’s all about substance, not process.

3 Comments

  1. LemmusLemmus says:

    I think the correspondent’s contribution would be more interesting if she made the case that multicollinearity is actually a problem – because I find the arguments to the contrary (in Wooldridge’s Econometrics Textbook and O’Brien’s famous article*) rather convincing.

    * http://www.nkd-group.com/ghdash/mba555/PDF/VIF%20article.pdf

    • Thom says:

      O’Brien’s article is very good but doesn’t endorse the position that multicollinearity is never a problem. It always reduces statistical power and low power is an issue in much research. It always makes it harder to tease apart the effects of individual predictors – which matters for many research questions.

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