Insurance Principles in Health Economics
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The error term u_i = Y_i - (β₁ + β₂X_i) is unobservable and based on the true population parameters. The residual e_i = Y_i - (b₁ + b₂X_i) is observable and based on sample estimates. They are equal only if b₁ = β₁ and b₂ = β₂, which almost never happens.
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