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The linear regression model relies on the strong assumption that \( E(\epsilon) = 0 \).

Describe intuitively what this assumption means and why this assumption might not hold.

Answer :

Final answer:

The assumption E(EL) = 0 in linear regression means that the expected value of the error term in the model is zero. However, this assumption might not hold in practice.

Explanation:

The assumption E(EL) = 0 in linear regression means that the expected value of the error term in the regression model is zero. In other words, on average, the predicted values from the model are equal to the actual values. This assumption is important because it allows us to estimate the coefficients of the regression model accurately.

However, this assumption might not hold in practice due to various reasons. For example, there may be other omitted variables that are not accounted for in the model, leading to a non-zero error term. There can also be measurement errors or random variations that cause deviations from the assumption.

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