The answer of this question is that there is an unobserved heterogeneity in this model but how can I identify this problem?
Why is it?
What is the main specification of heterogeneity?
And how to identify them in future models?
2026-04-04 04:02:31.1775275351
Can anyone explain why does a problem of heterogeneity exist in this model?
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You can study or consult with domain experts. There’s no silver bullet approach to every such problem because they’re all domain specific. If and when someone decides a way to discover and automatically add confounding variables to a model, we’d be one step closer to a universal model of everything. Building models involves understanding the world you’re trying to model and figuring out which variables probably matter.
For economics, different variables will have different weights depending on geography. In some societies, class will be a huge factor. In others, less so. Gender will be a common variable but social policies will probably determine to what extent.
On the flip side, in some societies, marriage is not overly common. Qatar is an example where throwing marriage into an income model may be misleading. Not enough of the population is married and it’s an incredibly wealthy country.