What are the disadvantages of using mean for missing values? I have an assignment (Data Mining course) and there is a part which asks: "What are the disadvantages of using mean for missing values?" in Missing Value section.
So I searched a little bit and the most common answer was: "Because it reduces the variance."
Why is this variance reduction considered as a bad thing? And is there any other disadvantage other that variance reduction?
 A: Using the mean for missing values is not ALWAYS a bad thing. In  econometrics, this is  a recommended course of action in some cases provided you understand what the consequences may be and in what cases it is helpful. As you have read, replacing missing values with the mean can reduce the variance but there are other side effects as well. Consider for example what happens to a regression model when replacing missing values with the mean.
Note that for regression models the coefficient of determination $$R^2 = \frac{SSR}{SSTO} = \frac{\sum (\hat{y_i} - \bar{y})^2}{\sum (y_i - \bar{y})^2}.$$ Assuming you have missing $y$ values and you replace those with the sample mean then you can have a $R^2$ value that is not as realistic as it should be. More variance in the data means there is more data that is likely further away from the regression line. Since the $R^2$ value depends on individual observed $y$ values (see $y_i$ in $SSTO$), your $R^2$ could be inflated because $SSTO$ will be smaller.
Let's look at an example.
Say you have a value $x_3$ and the corresponding observation for that $x$ value was $y_3$. We do the calculation for that result for SSTO and we have
$$
(y_3 - \bar{y})^2
$$
and that result gets added to the sum for $SSTO$. Now, instead, let's say that value $y_3$ is missing. We then let the missing $y_3 = \bar{y}$. We then have
$$
(\bar{y} - \bar{y})^2 = 0.
$$.
As you can see, when we add this to the other results for the denominator the $SSTO$ sum will be smaller.
A: Another possible disadvantage with using the mean for missing values is that the reason the values are missing in the first place could be dependent on the missing values themselves.  (This is called missing not at random.)
For example, on a health questionnaire, heavier respondents may be less willing to disclose their weight.  The mean of the observed values would be lower than the true mean for all respondents, and you'd be using that value in place of values that should actually be considerably higher.
Using the mean is less of an issue if the reason the values are missing is independent of the missing values themselves.
A: The problem isn’t specifically that it reduces the variance, but that it changes the variance of the dataset, making it a less accurate estimate for the variance of the actual population.  More generally, it will make the dataset a less accurate reflection of the population, in many ways.
It’s helpful to consider alternatives.  Why would using 0 (or any other random value) for missing points be a bad idea?  Because it would be changing the dataset in an artificial way, making it less reflective of the ideal population, and making conclusions you draw from the dataset less accurate.  Why is using the mean for missing points less bad than using other values?  Because it doesn’t change the mean of the dataset — and the mean is usually the most important single statistic.  But it’s still just a single statistic!  The whole point of data mining is that a dataset contains much more information besides the mean. Filling in missing points with the mean can affect all the rest of that information.  So the filled-in dataset will be less accurate for drawing conclusions about the actual population.  The variance is just one particular piece of that further information, that illustrates the changes clearly.
A: 
"Why is this variance reduction considered as a bad thing?"

As an oversimplified example: imagine, for a moment, that you have an extremely small economy on an island somewhere, with just 5 people.  Their Annual Incomes are as follows:


*

*Person 1: ♦10,000

*Person 2: ♦10,000

*Person 3: ♦12,000

*Person 4: ♦13,000

*Person 5: ♦25,000


A car company seeking to "break into the market" decide to price their vehicles based on the Average Annual Earnings.

Mean: ♦14,000
  Median: ♦12,000
  Mode: ♦10,000  

As you can see, using the Mode could exclude 80% of the population from buying their product, which makes it a very bad choice for building a business case!
A: Yes, I like to idea of sampling from a distribution, when one has many missing values, to get a replacement value for missing value k.
My choice, however, is a distribution centered at the sample median (not mean) and with variance given here https://www.jstor.org/stable/30037287?seq=1 .
Perhaps sample from a truncated normal based upon the above parameters.
