Attenuation, when your regressor is measured with noise
Asked at DE Shaw
The true model is , but you cannot observe cleanly. You measure , where is independent measurement noise (independent of and ). You regress on the noisy .
Derive what your estimated slope converges to, and describe the bias.
Show a hint
Same technique as omitted-variable bias: write the slope as and substitute. The noise inflates the denominator but not the numerator.
Your answer
This one is open-ended. Work it through, then check your reasoning against the full solution.