♪ [music] ♪
- [Narrator] Welcome
to Nobel Conversations.
In this episode, Josh Angrist
and Guido Imbens
sit down with Isaiah Andrews
to discuss and disagree
over the role of machine learning
in applied econometrics.
- [Isaiah] So, of course,
there are a lot of topics
where you guys largely agree,
but I'd like to turn to one
where maybe you have
some differences of opinion.
I'd love to hear
some of your thoughts
about machine learning
and the goal that it's playing
and is going to play in economics.
- [Guido] I've looked at some data
like the proprietary.
We see that there's
no published paper there.
There was an experiment
that was done
on some search algorithm,
and the question was...
it was about ranking things
and changing the ranking.
And it was sort of clear
that there was going to be
a lot of heterogeneity there.
If you look for, say,
a picture of Britney Spears,
that it doesn't really matter
where you rank it
because you're going to figure out
what you're looking for,
whether you put it
in the first or second
or third position of the ranking.
But if you're looking
for the best econometrics book,
if you put your book first
or your book tenth --
that's going to make
a big difference
how often people
are going to click on it.
And so there you --
- [Josh] Why do I need
machine learning to discover that?
It seems like -- because
I can discover it simply.
- [Guido] So in [general] --
- [Josh] There were lots
of possible...
- You what to think about
there being lots of characteristics
of the items,
that you want to understand
what drives the heterogeneity
in the effect of --
- But you're just predicting
In some sense, you're solving
a marketing problem.
- No, it's a causal effect,
- It's causal, but it has
no scientific content.
Think about...
- No, but there's similar things
in medical settings.
If you do an experiment,
you may actually be very interested
in whether the treatment works
for some groups or not.
And you have a lot
of individual characteristics,
and you want
to systematically search --
- Yeah. I'm skeptical about that --
that sort of idea that there's
this personal causal effect
that I should care about,
and that machine learning
can discover it
in some way that's useful.
So think about -- I've done
a lot of work on schools,
going to, say, a charter school,
a publicly funded private school,
effectively,
that's free to structure
its own curriculum
for context there.
Some types of charter schools
generate spectacular
achievement gains,
and in the data set
that produces that result,
I have a lot of covariates.
So I have baseline scores,
and I have family background,
the education of the parents,
the sex of the child,
the race of the child.
And, well, soon as I put
half a dozen of those together,
I have a very
high-dimensional space.
I'm definitely interested
in course features
of that treatment effect,
like whether it's better for people
who come from
lower-income families.
I have a hard time believing
that there's an application
for the very high-dimensional
version of that,
where I discovered
that for non-white children
who have high family incomes
but baseline scores
in the third quartile
and only went to public school
in the third grade
but not the sixth grade.
So that's what that
high-dimensional analysis produces.
It's a very elaborate
conditional statement.
There's two things that are wrong
with that in my view.
First, I don't see it as --
I just can't imagine
why it's actionable.
I don't know why
you'd want to act on it.
And I know also that
there's some alternative model
that fits almost as well,
that flips everything.
Because machine learning
doesn't tell me
that this is really
the predictor that matters.
It just tells me
that this is a good predictor.
And so, I think
there is something different
about the social science context.
- [Guido] I think
the social science applications
you're talking about,
ones where...
I think there's not a huge amount
of heterogeneity in the effects.
- [Josh] Well, there might be
if you allow me
to fill that space.
- No... not even then.
I think for a lot
of those interventions,
you would expect that the effect
has the same sign for everybody.
There may be small differences
in the magnitude, but it's not...
For a lot of these
educational [defenses],
they're good for everybody.
It's not that they're bad
for some people
and good for other people,
and that is kind
of very small pockets
where they're bad there.
But there may be some variation
in the magnitude,
but you would need very,
very big data sets to find those.
I agree that in those cases,
they probably wouldn't be
very actionable anyway.
But I think there's a lot
of other settings
where there is
much more heterogeneity.
- Well, I'm open
to that possibility,
and I think the example you gave
is essentially a marketing example.
- No, those have
implications for it
and that's the organization,
whether you need
to worry about the...
- Well, I need to see that paper.
- So the sense
I'm getting is that --
- We still disagree on something.
- Yes. [laughter]
- We haven't converged
on everything.
- I'm getting that sense.
[laughter]
- Actually, we've diverged on this
because this wasn't around
to argue about.
[laughter]
- Is it getting a little warm here?
- Warmed up. Warmed up is good.
The sense I'm getting is,
Josh, you're not saying
that you're confident
that there is no way
that there is an application
with the stuff.
It's useful you are saying
you are unconvinced
by the existing
applications to date.
- Fair enough.
- I'm very confident.
[laughter]
- In this case.
- I think Josh does have a point
that even in the prediction cases
where a lot of the machine learning
methods really shine
is where there's just a lot
of heterogeneity.
- You don't really care much
about the details there, right?
- [Guido] Yes.
- It doesn't have
a policy angle or something.
- The kind of recognizing
handwritten digits and stuff --
it does much better there
than building
some complicated model.
But a lot of the social science,
a lot of the economic applications,
we actually know a huge amount
about the relationship
between its variables.
A lot of the relationships
are strictly monotone.
Education is going to increase
people's earnings,
irrespective of the demographic,
irrespective of the level
of education you already have.
- Until they get to a Ph.D.
- They don't have proof
of graduate school...
[laughter]
- Over a reasonable range.
It's not going
to go down very much.
In a lot of the settings
where these machine learning
methods shine,
there's a lot of non-monotonicity
kind of multimodality
in these relationships,
and they're going to be
very powerful.
But I still stand by that.
These methods just have
a huge amount to offer
for economists,
and they're going to be
a big part of the future.
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- [Isaiah] It feels like
there's something interesting
to be said about
machine learning here.
So, Guido, I was wondering,
could you give some more...
maybe some examples
of the sorts of examples
you're thinking about
with applications [inaudible]
at the moment?
- So one area is where
instead of looking
for average causal effects,
we're looking for
individualized estimates,
predictions of cause or effects,
and the machine learning algorithms
have been very effective.
Traditionally, we would have done
these things using kernel methods,
and theoretically, they work great,
and there's some arguments
that, formally,
you can't do any better.
But in practice,
they don't work very well.
Random causal forest-type things
that Stefan Wager and Susan Athey
have been working on
are used very widely.
They've been very effective
in these settings
to actually get causal effects
that vary by covariate.
I think this is still just
the beginning of these methods.
But in many cases,
these algorithms are very effective
as searching over big spaces
and finding the functions
that fit very well
in ways that we couldn't
really do beforehand.
- I don't know of an example
where machine learning
has generated insights
about a causal effect
that I'm interested in.
And I do know of examples
where it's potentially
very misleading.
So I've done some work
with Brigham Frandsen,
using, for example, random forest
to model covariate effects
in an instrumental
variables problem
where you need
to condition on covariates.
And you don't particularly
have strong feelings
about the functional form for that,
so maybe you should curve...
be open to flexible curve fitting,
And that leads you down a path
where there's a lot
of nonlinearities in the model,
and that's very dangerous with IV
because any sort
of excluded non-linearity
potentially generates
a spurious causal effect,
and Brigham and I showed that
very powerfully, I think,
in the case of two instruments
that come from a paper of mine
with Bill Evans,
where if you replace it...
a traditional two-stage
least squares estimator
with some kind of random forest,
you get very precisely estimated
nonsense estimates.
I think that's a big caution.
In view of those findings,
in an example I care about
where the instruments
are very simple
and I believe that they're valid,
I would be skeptical of that.
Non-linearity and IV
don't mix very comfortably.
- No, it sounds like that's already
a more complicated...
- Well, it's IV...
- Yeah.
- ...but then we work on that.
[laughter]
- Fair enough.
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- [Guido] As an editor
of econometric guy,
a lot of these papers
cross my desk,
but the motivation is not clear
and, in fact, really lacking.
They're not...
[vehicle]-type semiparametric
foundational papers.
So that's a big problem.
A related problem is that we have
this tradition in econometrics
of being very focused
on these formal asymptotic results.
We just have a lot of papers
where people propose a method,
and then they establish
the asymptotic properties
in a very kind of standardized way.
- Is that bad?
- Well, I think it's sort
of closed the door
for a lot of work
that doesn't fit into that
where in the machine
learning literature,
a lot of things
are more algorithmic.
People had algorithms
for coming up with predictions
that turn out
to actually work much better
than, say, nonparametric
kernel regression.
For a long time, we were doing all
the nonparametrics in econometrics,
and we were using
kernel regression,
and that was great
for proving theorems.
You could get confidence intervals
and consistency,
and asymptotic normality,
and it was all great,
But it wasn't very useful.
And the things they did
in machine learning
are just way, way better.
But they didn't have the problem --
- That's not my beef
with machine learning,
that the theory is weak.
[laughter]
- No, but I'm saying there,
for the prediction part,
it does much better.
- Yeah, it's a better
curve fitting to it.
- But it did so in a way
that would not have made
those papers
initially easy to get into,
the econometrics journals,
because it wasn't proving
the type of things...
When Breiman was doing
his regression trees --
they just didn't fit in.
I think he would have had
a very hard time
publishing these things
in econometrics journals.
I think we've limited
ourselves too much
that left us close things off
for a lot of these
machine-learning methods
that are actually very useful.
I mean, I think, in general,
that literature,
the computer scientist,
have brought a huge number
of these algorithms there --
have proposed a huge number
of these algorithms
that actually are very useful.
and that are affecting
the way we're going
to be doing empirical work.
But we've not fully
internalized that
because we're still very focused
on getting point estimates
and getting standard errors
and getting P values
in a way that we need
to move beyond
to fully harness the force,
the benefits
from machine learning literature.
- On the one hand, I guess I very
much take your point
that sort of the traditional
econometrics framework
of propose a method,
prove a limit theorem
under some asymptotic story,
story, story, story, story...
publisher paper is constraining,
and that, in some sense,
by thinking more broadly
about what a methods paper
could look like,
we may in some sense.
Certainly, the machine
learning literature
has found a bunch of things
which seem to work quite well
for a number of problems
and are now having
substantial influence in economics.
I guess a question
I'm interested in
is how do you think
about the role of...
Do you think there is no value
in the theory part of it?
Because I guess a question
that I often have
to seeing the output
from a machine learning tool,
and actually a number
of the methods
that you talked about
actually do have
inferential results
developed for them,
something that
I always wonder about,
a sort of uncertainty
quantification and just...
I have my prior,
I come into the world with my view,
I see the result of this thing.
How should I update based on it?
And in some sense,
if I'm in a world
where things
are normally distributed,
I know how to do it --
here I don't.
And so I'm interested to hear
what you think about that.
- I don't see this
as sort of saying, well,
these results are not interesting,
but it's going to be a lot of cases
where it's going to be incredibly
hard to get those results,
and we may not
be able to get there,
and we may need to do it in stages
where first someone says,
"Hey, I have
this interesting algorithm
for doing something
and it works well
by some criterion there
on this particular data set,
and we should put it out there,
and maybe someone
will figure out a way
that you can later actually
still do inference
under some condition,
and maybe those are not
particularly realistic conditions,
then we kind of go further.
But I think we've been
constraining things too much
where we said,
"This is the type of things
that we need to do.
And in some sense,
that goes back
to the way Josh and I
thought about things for the local
average treatment effect.
That wasn't quite the way
people were thinking
about these problems before.
There was a sense
that some of the people said
the way you need to do
these things is you first say
what you're interested
in estimating,
and then you do the best job
you can in estimating that.
And what you guys are doing
is you're doing it backwards.
You kind of say,
"Here, I have an estimator,
and now I'm going to figure out
what it's estimating,
and I suppose you're going to say
why you think that's interesting
or maybe why it's not interesting,
and that's not okay.
You're not allowed
to do that in that way.
And I think we should
just be a little bit more flexible
in thinking about
how to look at problems
because I think
we've missed some things
by not doing that.
♪ [music] ♪
- [Josh] So you've heard
our views, Isaiah,
and you've seen that we have
some points of disagreement.
Why don't you referee
this dispute for us?
[laughter]
- Oh, it's so nice of you
to ask me a small question.
[laughter]
So I guess, for one,
I very much agree with something
that Guido said earlier of...
[laughter]
So one thing where it seems
where the case for machine learning
seems relatively clear
is in settings where
we're interested in some version
of a nonparametric
prediction problem.
So I'm interested in estimating
a conditional expectation
or conditional probability,
and in the past, maybe
I would have run a kernel...
I would have run
a kernel regression
or I would have run
a series regression,
or something along those lines.
It seems like, at this point,
we've a fairly good sense
that in a fairly wide range
of applications,
machine learning methods
seem to do better
for estimating conditional
mean functions,
or conditional probabilities,
or various other
nonparametric objects
than more traditional
nonparametric methods
that were studied
in econometrics and statistics,
especially in
high-dimensional settings.
- So you're thinking of maybe
the propensity score
or something like that?
- Yeah, exactly,
- Nuisance functions.
- Yeah, so things
like propensity scores.
Even objects of more direct
interest-like conditional
average treatment effects,
which are the difference of two
conditional expectation functions,
potentially things like that.
Of course, even there,
the theory...
for inference of the theory
for how to interpret,
how to make large sample statements
about some of these things
are less well-developed
depending on
the machine learning
estimator used.
And so I think
something that is tricky
is that we can have these methods,
which work a lot,
which seem to work
a lot better for some purposes
but which we need to be a bit
careful in how we plug them in
or how we interpret
the resulting statements.
But, of course, that's a very,
very active area right now
where people are doing
tons of great work.
And so I fully expect
and hope to see
much more going forward there.
So one issue with machine learning
that always seems a danger is...
or that is sometimes a danger
and has sometimes
led to applications
that have made less sense
is when folks start with a method
that they're very excited about
rather than a question.
So sort of starting with a question
where here's the object
I'm interested in,
here is the parameter
of interest --
let me think about how I would
identify that thing,
how I would recover that thing
if I had a ton of data.
Oh, here's a conditional
expectation function,
let me plug in a machine
learning estimator for that --
that seems very, very sensible.
Whereas, you know,
if I regress quantity on price
and say that I used
a machine learning method,
maybe I'm satisfied that
that solves the endogeneity problem
we're usually worried
about there... maybe I'm not.
But, again, that's something
where the way to address it
seems relatively clear.
It's to find
your object of interest
and think about--
- Just bring in the economics.
- Exactly.
- And think about
the heterogeneity,
but harness the power
of the machine learning methods
for some of the components.
- Precisely. Exactly.
So the question of interest
is the same as the question
of interest has always been,
but we now have better methods
for estimating some pieces of this.
The place that seems
harder to forecast
is obviously there's
a huge amount going on
in the machine learning literature,
and the limited ways
of plugging it in
that I've referenced so far
are a limited piece of that.
So I think there are all sorts
of other interesting questions
about where...
where does this interaction go?
What else can we learn?
And that's something where
I think there's a ton going on,
which seems very promising,
and I have no idea
what the answer is.
- No, I totally agree with that,
but that makes it very exciting.
And I think there's just
a little work to be done there.
Alright. So I say,
he agrees with me there.
[laughter]
- I didn't say that per se.
♪ [music] ♪
- [Narrator] If you'd like to watch
more Nobel Conversations,
click here.
Or if you'd like to learn
more about econometrics,
check out Josh's
Mastering Econometrics series.
If you'd like to learn more
about Guido, Josh, and Isaiah,
check out the links
in the description.
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