usually when I see derivations of ommited variable bias, I see something of the sort: from y=xb + $\eta$, and looking at the for formula for the slope estimate:
- $cov(x,xb+\eta )$$/var(x)$=
- b + $cov(x,\eta)$$/var(x)$
my question is, how does intuitively step 2 make sense? plugging in y in to the covariance formula? Is it that we are taking y=xb + $\eta$ literally of how Y is being generated, and so any y we see in the population is theoretically equivalent to xb + $\eta$?