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♪ [music] ♪

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- [Narrator] Welcome[br]to Nobel Conversations.

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In this episode, Josh Angrist[br]and Guido Imbens

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sit down with Isaiah Andrews[br]to discuss and disagree

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over the role of machine learning[br]in applied econometrics.

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- [Isaiah] So, of course,[br]there are a lot of topics

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where you guys largely agree,

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but I'd like to turn to one

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where maybe you have[br]some differences of opinion.

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I'd love to hear[br]some of your thoughts

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about machine learning

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and the goal that it's playing[br]and is going to play in economics.

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- [Guido] I've looked at some data[br]like the proprietary.

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We see that there's[br]no published paper there.

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There was an experiment[br]that was done

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on some search algorithm,

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and the question was --

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it was about ranking things[br]and changing the ranking.

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And it was sort of clear

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that there was going to be[br]a lot of heterogeneity there.

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If you look for, say,

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a picture of Britney Spears --

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that it doesn't really matter[br]where you rank it

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because you're going to figure out[br]what you're looking for,

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whether you put it[br]in the first or second

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or third position of the ranking.

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But if you're looking[br]for the best econometrics book,

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if you put your book first[br]or your book tenth --

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that's going to make[br]a big difference

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how often people[br]are going to click on it.

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And so there you --

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- [Josh] Why do I need[br]machine learning to discover that?

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It seems like -- because[br]I can discover it simply.

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- [Guido] So in general --

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- [Josh] There were lots[br]of possible...

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- You want to think about[br]there being lots of characteristics

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of the items,

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that you want to understand[br]what drives the heterogeneity

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in the effect of --

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- But you're just predicting

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In some sense, you're solving[br]a marketing problem.

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- No, it's a causal effect,

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- It's causal, but it has[br]no scientific content.

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Think about...

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- No, but there's similar things[br]in medical settings.

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If you do an experiment, [br]you may actually be very interested

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in whether the treatment works[br]for some groups or not.

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And you have a lot[br]of individual characteristics,

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and you want[br]to systematically search --

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- Yeah. I'm skeptical about that --

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that sort of idea that there's[br]this personal causal effect

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that I should care about,

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and that machine learning[br]can discover it

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in some way that's useful.

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So think about -- I've done[br]a lot of work on schools,

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going to, say, a charter school,

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a publicly funded private school,

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effectively, [br]that's free to structure

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its own curriculum[br]for context there.

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Some types of charter schools

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generate spectacular[br]achievement gains,

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and in the data set[br]that produces that result,

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I have a lot of covariates.

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So I have baseline scores,[br]and I have family background,

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the education of the parents,

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the sex of the child, [br]the race of the child.

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And, well, soon as I put[br]half a dozen of those together,

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I have a very [br]high-dimensional space.

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I'm definitely interested[br]in course features

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of that treatment effect,

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like whether it's better for people

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who come from[br]lower-income families.

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I have a hard time believing[br]that there's an application

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for the very high-dimensional[br]version of that,

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where I discovered[br]that for non-white children

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who have high family incomes

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but baseline scores[br]in the third quartile

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and only went to public school[br]in the third grade

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but not the sixth grade.

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So that's what that [br]high-dimensional analysis produces.

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It's a very elaborate[br]conditional statement.

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There's two things that are wrong[br]with that in my view.

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First, I don't see it as --

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I just can't imagine[br]why it's actionable.

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I don't know why[br]you'd want to act on it.

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And I know also that[br]there's some alternative model

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that fits almost as well,

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that flips everything.

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Because machine learning[br]doesn't tell me

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that this is really[br]the predictor that matters --

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it just tells me[br]that this is a good predictor.

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And so, I think[br]there is something different

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about the social science context.

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- [Guido] I think[br]the social science applications

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you're talking about

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are ones where,

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I think, there's not a huge amount[br]of heterogeneity in the effects.

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- [Josh] Well, there might be[br]if you allow me

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to fill that space.

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- No... not even then.

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I think for a lot[br]of those interventions,

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you would expect that the effect[br]is the same sign for everybody.

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There may be small differences[br]in the magnitude, but it's not...

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For a lot of these[br]educational defenses --

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they're good for everybody.

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It's not that they're bad[br]for some people

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and good for other people,

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and that is kind[br]of very small pockets

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where they're bad there.

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But there may be some variation[br]in the magnitude,

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but you would need very, [br]very big data sets to find those.

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I agree that in those cases,

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they probably wouldn't be[br]very actionable anyway.

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But I think there's a lot[br]of other settings

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where there is[br]much more heterogeneity.

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- Well, I'm open[br]to that possibility,

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and I think the example you gave[br]is essentially a marketing example.

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- No, those have[br]implications for it

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and that's the organization,

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whether you need[br]to worry about the...

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- Well, I need to see that paper.

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- So the sense[br]I'm getting is that --

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- We still disagree on something.[br]- Yes.

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- We haven't converged[br]on everything.

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- I'm getting that sense.[br][laughter]

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- Actually, we've diverged on this

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because this wasn't around[br]to argue about.

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[laughter]

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- Is it getting a little warm here?

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- Warmed up. Warmed up is good.

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The sense I'm getting is, [br]Josh, you're not saying

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that you're confident[br]that there is no way

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that there is an application[br]where this stuff is useful.

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You are saying[br]you are unconvinced

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by the existing[br]applications to date.

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- Fair enough.[br]- I'm very confident.

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[laughter]

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- In this case.

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- I think Josh does have a point

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that even in the prediction cases

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where a lot of the machine learning[br]methods really shine

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is where there's just a lot[br]of heterogeneity.

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- You don't really care much[br]about the details there, right?

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- [Guido] Yes.

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- It doesn't have[br]a policy angle or something.

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- The kind of recognizing[br]handwritten digits and stuff --

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it does much better there

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than building[br]some complicated model.

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But a lot of the social science,[br]a lot of the economic applications,

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we actually know a huge amount[br]about the relationship

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between its variables.

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A lot of the relationships[br]are strictly monotone.

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Education is going to increase[br]people's earnings,

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irrespective of the demographic,

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irrespective of the level[br]of education you already have.

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- Until they get to a Ph.D.

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- Is that true for graduate school?

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[laughter]

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- Over a reasonable range.

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It's not going[br]to go down very much.

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In a lot of the settings

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where these machine learning[br]methods shine,

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there's a lot of non-monotonicity,

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kind of multimodality[br]in these relationships,

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and they're going to be[br]very powerful.

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But I still stand by that.

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These methods just have[br]a huge amount to offer

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for economists,

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and they're going to be[br]a big part of the future.

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♪ [music] ♪

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- [Isaiah] It feels like[br]there's something interesting

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to be said about[br]machine learning here.

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So, Guido, I was wondering,[br]could you give some more...

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maybe some examples[br]of the sorts of examples

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you're thinking about

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with applications coming out[br]at the moment?

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- So one area is where

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instead of looking[br]for average causal effects,

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we're looking for[br]individualized estimates,

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predictions of causal effects,

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and there, [br]the machine learning algorithms

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have been very effective.

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Traditionally, we would have done[br]these things using kernel methods,

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and theoretically, they work great,

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and there's some arguments

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that, formally, [br]you can't do any better.

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But in practice, [br]they don't work very well.

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Random causal forest-type things

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that Stefan Wager and Susan Athey[br]have been working on

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are used very widely.

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They've been very effective[br]in these settings

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to actually get causal effects[br]that vary by covariates.

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I think this is still just[br]the beginning of these methods.

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But in many cases,

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these algorithms are very effective[br]as searching over big spaces

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and finding the functions[br]that fit very well

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in ways that we couldn't[br]really do beforehand.

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- I don't know of an example

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where machine learning[br]has generated insights

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about a causal effect[br]that I'm interested in.

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And I do know of examples

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where it's potentially[br]very misleading.

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So I've done some work[br]with Brigham Frandsen,

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using, for example, random forests[br]to model covariate effects

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in an instrumental[br]variables problem

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where you need[br]to condition on covariates.

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And you don't particularly[br]have strong feelings

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about the functional form for that,

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so maybe you should curve...

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be open to flexible curve fitting,

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And that leads you down a path

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where there's a lot[br]of nonlinearities in the model,

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and that's very dangerous with IV

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because any sort[br]of excluded non-linearity

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potentially generates[br]a spurious causal effect,

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and Brigham and I showed that[br]very powerfully, I think,

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in the case of two instruments

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that come from a paper of mine[br]with Bill Evans,

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where if you replace it...

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a traditional two-stage[br]least squares estimator

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with some kind of random forest,

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you get very precisely estimated[br]nonsense estimates.

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I think that's a big caution.

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In view of those findings,[br]in an example I care about

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where the instruments[br]are very simple

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and I believe that they're valid,

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I would be skeptical of that.

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Non-linearity and IV[br]don't mix very comfortably.

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- No, it sounds like that's already[br]a more complicated...

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- Well, it's IV...[br]- Yeah.

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- ...but then we work on that.

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[laughter]

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- Fair enough.

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♪ [music] ♪

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- [Guido] As editor [br]of Econometrica,

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a lot of these papers[br]cross my desk,

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but the motivation is not clear

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and, in fact, really lacking.

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They're not...

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[vehicle]-type semiparametric[br]foundational papers.

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So that's a big problem.

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A related problem is that we have[br]this tradition in econometrics

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of being very focused[br]on these formal asymptotic results.

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We just have a lot of papers[br]where people propose a method,

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and then they establish[br]the asymptotic properties

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in a very kind of standardized way.

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- Is that bad?

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- Well, I think it's sort[br]of closed the door

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for a lot of work[br]that doesn't fit into that

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where in the machine[br]learning literature,

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a lot of things[br]are more algorithmic.

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People had algorithms[br]for coming up with predictions

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that turn out[br]to actually work much better

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than, say, nonparametric[br]kernel regression.

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For a long time, we were doing all[br]the nonparametrics in econometrics,

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and we were using[br]kernel regression,

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and that was great[br]for proving theorems.

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You could get confidence intervals

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and consistency, [br]and asymptotic normality,

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and it was all great,

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But it wasn't very useful.

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And the things they did[br]in machine learning

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are just way, way better.

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But they didn't have the problem --

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- That's not my beef[br]with machine learning,

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that the theory is weak.

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[laughter]

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- No, but I'm saying there,[br]for the prediction part,

0:11:51.320,0:11:52.394
it does much better.

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- Yeah, it's a better[br]curve fitting to it.

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- But it did so in a way

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that would not have made[br]those papers

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initially easy to get into,[br]the econometrics journals,

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because it wasn't proving[br]the type of things...

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When Breiman was doing[br]his regression trees --

0:12:09.864,0:12:11.200
they just didn't fit in.

0:12:12.944,0:12:14.934
I think he would have had[br]a very hard time

0:12:14.934,0:12:18.400
publishing these things[br]in econometrics journals.

0:12:20.189,0:12:23.656
I think we've limited[br]ourselves too much

0:12:24.700,0:12:27.830
that left us close things off

0:12:27.830,0:12:29.622
for a lot of these[br]machine-learning methods

0:12:29.622,0:12:31.163
that are actually very useful.

0:12:31.163,0:12:34.000
I mean, I think, in general,

0:12:34.900,0:12:36.529
that literature, [br]the computer scientist,

0:12:36.529,0:12:40.013
have brought a huge number[br]of these algorithms there --

0:12:40.582,0:12:42.632
have proposed a huge number[br]of these algorithms

0:12:42.632,0:12:43.875
that actually are very useful.

0:12:43.887,0:12:46.153
and that are affecting

0:12:46.153,0:12:49.100
the way we're going[br]to be doing empirical work.

0:12:49.800,0:12:52.105
But we've not fully[br]internalized that

0:12:52.105,0:12:53.573
because we're still very focused

0:12:53.573,0:12:57.500
on getting point estimates[br]and getting standard errors

0:12:58.600,0:13:00.144
and getting P values

0:13:00.159,0:13:03.209
in a way that we need[br]to move beyond

0:13:03.209,0:13:06.090
to fully harness the force,

0:13:06.549,0:13:08.351
the benefits

0:13:08.351,0:13:10.700
from machine learning literature.

0:13:11.198,0:13:13.548
- On the one hand, I guess I very[br]much take your point

0:13:13.548,0:13:16.850
that sort of the traditional[br]econometrics framework

0:13:16.850,0:13:19.821
of propose a method,[br]prove a limit theorem

0:13:19.821,0:13:23.870
under some asymptotic story,[br]story, story, story, story...

0:13:24.424,0:13:27.057
publisher paper is constraining,

0:13:27.218,0:13:30.132
and that, in some sense,[br]by thinking more broadly

0:13:30.132,0:13:31.699
about what a methods paper[br]could look like,

0:13:31.699,0:13:33.316
we may in some sense.

0:13:33.316,0:13:34.959
Certainly, the machine[br]learning literature

0:13:34.959,0:13:37.189
has found a bunch of things[br]which seem to work quite well

0:13:37.189,0:13:38.300
for a number of problems

0:13:38.300,0:13:41.267
and are now having[br]substantial influence in economics.

0:13:41.267,0:13:43.261
I guess a question[br]I'm interested in

0:13:43.261,0:13:46.465
is how do you think[br]about the role of...

0:13:48.657,0:13:51.200
Do you think there is no value[br]in the theory part of it?

0:13:51.600,0:13:54.187
Because I guess a question[br]that I often have

0:13:54.187,0:13:56.804
to seeing the output[br]from a machine learning tool,

0:13:56.804,0:13:58.207
and actually a number[br]of the methods

0:13:58.207,0:13:59.220
that you talked about

0:13:59.220,0:14:00.679
actually do have[br]inferential results

0:14:00.679,0:14:01.944
developed for them,

0:14:02.520,0:14:03.963
something that[br]I always wonder about,

0:14:03.963,0:14:06.659
a sort of uncertainty[br]quantification and just...

0:14:06.659,0:14:08.000
I have my prior,

0:14:08.000,0:14:11.000
I come into the world with my view,[br]I see the result of this thing.

0:14:11.000,0:14:12.395
How should I update based on it?

0:14:12.395,0:14:13.867
And in some sense, [br]if I'm in a world

0:14:13.867,0:14:15.914
where things[br]are normally distributed,

0:14:15.914,0:14:17.280
I know how to do it --

0:14:17.280,0:14:18.305
here I don't.

0:14:18.305,0:14:21.028
And so I'm interested to hear[br]what you think about that.

0:14:21.500,0:14:24.425
- I don't see this [br]as sort of saying, well,

0:14:24.698,0:14:26.556
these results are not interesting,

0:14:26.556,0:14:27.968
but it's going to be a lot of cases

0:14:27.968,0:14:30.153
where it's going to be incredibly[br]hard to get those results,

0:14:30.153,0:14:32.489
and we may not[br]be able to get there,

0:14:32.489,0:14:34.942
and we may need to do it in stages

0:14:34.942,0:14:36.440
where first someone says,

0:14:36.440,0:14:40.900
"Hey, I have[br]this interesting algorithm

0:14:40.900,0:14:42.200
for doing something,

0:14:42.200,0:14:47.769
and it works well[br]by some criterion there

0:14:47.769,0:14:49.900
on this particular data set,

0:14:51.000,0:14:52.602
and we should put it out there."

0:14:52.602,0:14:55.410
and maybe someone[br]will figure out a way

0:14:55.410,0:14:57.828
that you can later actually[br]still do inference

0:14:57.828,0:14:59.463
under some condition,

0:14:59.463,0:15:02.100
and maybe those are not[br]particularly realistic conditions,

0:15:02.100,0:15:03.800
then we kind of go further.

0:15:03.800,0:15:08.418
But I think we've been[br]constraining things too much

0:15:08.418,0:15:09.519
where we said,

0:15:09.519,0:15:13.185
"This is the type of things[br]that we need to do."

0:15:13.185,0:15:14.502
And in some sense,

0:15:15.700,0:15:18.200
that goes back[br]to the way Josh and I

0:15:19.700,0:15:21.984
thought about things for the local[br]average treatment effect.

0:15:21.984,0:15:23.137
That wasn't quite the way

0:15:23.137,0:15:25.135
people were thinking[br]about these problems before.

0:15:25.805,0:15:28.860
There was a sense[br]that some of the people said

0:15:29.500,0:15:31.900
the way you need to do[br]these things is you first say

0:15:32.200,0:15:34.250
what you're interested[br]in estimating,

0:15:34.250,0:15:37.507
and then you do the best job[br]you can in estimating that.

0:15:38.100,0:15:43.874
And what you guys are doing[br]is you're doing it backwards.

0:15:44.300,0:15:46.700
You kind of say,[br]"Here, I have an estimator,

0:15:47.300,0:15:50.642
and now I'm going to figure out[br]what it's estimating."

0:15:50.642,0:15:53.900
And I suppose you're going to say[br]why you think that's interesting

0:15:53.900,0:15:56.600
or maybe why it's not interesting,[br]and that's not okay.

0:15:56.600,0:15:58.600
You're not allowed[br]to do that in that way.

0:15:59.000,0:16:02.026
And I think we should[br]just be a little bit more flexible

0:16:02.026,0:16:06.648
in thinking about[br]how to look at problems

0:16:06.648,0:16:08.328
because I think[br]we've missed some things

0:16:08.328,0:16:11.300
by not doing that.

0:16:11.300,0:16:12.819
♪ [music] ♪

0:16:12.819,0:16:14.753
- [Josh] So you've heard[br]our views, Isaiah,

0:16:14.753,0:16:18.191
and you've seen that we have[br]some points of disagreement.

0:16:18.191,0:16:20.400
Why don't you referee[br]this dispute for us?

0:16:20.950,0:16:22.394
[laughter]

0:16:22.500,0:16:24.999
- Oh, it's so nice of you[br]to ask me a small question.

0:16:24.999,0:16:26.212
[laughter]

0:16:26.425,0:16:27.993
So I guess, for one,

0:16:27.993,0:16:33.200
I very much agree with something[br]that Guido said earlier of...

0:16:34.100,0:16:35.710
[laughter]

0:16:35.920,0:16:37.148
So one thing where it seems

0:16:37.148,0:16:40.066
where the case for machine learning[br]seems relatively clear

0:16:40.066,0:16:43.316
is in settings where[br]we're interested in some version

0:16:43.316,0:16:45.100
of a nonparametric[br]prediction problem.

0:16:45.100,0:16:46.392
So I'm interested in estimating

0:16:46.392,0:16:49.700
a conditional expectation[br]or conditional probability,

0:16:50.000,0:16:52.100
and in the past, maybe[br]I would have run a kernel...

0:16:52.100,0:16:53.526
I would have run[br]a kernel regression

0:16:53.526,0:16:55.184
or I would have run[br]a series regression,

0:16:55.184,0:16:57.400
or something along those lines.

0:16:57.976,0:17:00.350
It seems like, at this point, [br]we've a fairly good sense

0:17:00.350,0:17:03.102
that in a fairly wide range[br]of applications,

0:17:03.102,0:17:05.671
machine learning methods[br]seem to do better

0:17:05.671,0:17:08.610
for estimating conditional[br]mean functions,

0:17:08.610,0:17:09.811
or conditional probabilities,

0:17:09.811,0:17:12.000
or various other[br]nonparametric objects

0:17:12.400,0:17:15.309
than more traditional[br]nonparametric methods

0:17:15.309,0:17:17.292
that were studied[br]in econometrics and statistics,

0:17:17.292,0:17:19.100
especially in[br]high-dimensional settings.

0:17:19.500,0:17:21.849
- So you're thinking of maybe[br]the propensity score

0:17:21.849,0:17:23.155
or something like that?

0:17:23.155,0:17:25.063
- Yeah, exactly,[br]- Nuisance functions.

0:17:25.063,0:17:27.100
- Yeah, so things[br]like propensity scores.

0:17:27.872,0:17:29.965
Even objects of more direct

0:17:29.965,0:17:32.400
interest-like conditional[br]average treatment effects,

0:17:32.400,0:17:35.100
which are the difference of two[br]conditional expectation functions,

0:17:35.100,0:17:36.625
potentially things like that.

0:17:36.625,0:17:40.573
Of course, even there, [br]the theory...

0:17:40.573,0:17:43.620
for inference of the theory[br]for how to interpret,

0:17:43.620,0:17:45.797
how to make large sample statements[br]about some of these things

0:17:45.797,0:17:47.733
are less well-developed[br]depending on

0:17:47.733,0:17:50.100
the machine learning[br]estimator used.

0:17:50.100,0:17:52.983
And so I think[br]something that is tricky

0:17:52.983,0:17:55.700
is that we can have these methods,[br]which work a lot,

0:17:55.700,0:17:58.000
which seem to work[br]a lot better for some purposes

0:17:58.000,0:18:01.229
but which we need to be a bit[br]careful in how we plug them in

0:18:01.229,0:18:03.300
or how we interpret[br]the resulting statements.

0:18:03.600,0:18:05.985
But, of course, that's a very,[br]very active area right now

0:18:05.985,0:18:07.568
where people are doing[br]tons of great work.

0:18:07.568,0:18:10.694
And so I fully expect[br]and hope to see

0:18:10.694,0:18:12.800
much more going forward there.

0:18:13.000,0:18:16.780
So one issue with machine learning[br]that always seems a danger is...

0:18:16.780,0:18:18.517
or that is sometimes a danger

0:18:18.517,0:18:20.938
and has sometimes[br]led to applications

0:18:20.938,0:18:22.139
that have made less sense

0:18:22.139,0:18:27.309
is when folks start with a method[br]that they're very excited about

0:18:27.309,0:18:28.676
rather than a question.

0:18:28.900,0:18:30.492
So sort of starting with a question

0:18:30.492,0:18:33.782
where here's the object[br]I'm interested in,

0:18:33.782,0:18:35.228
here is the parameter[br]of interest --

0:18:35.529,0:18:39.500
let me think about how I would[br]identify that thing,

0:18:39.500,0:18:41.824
how I would recover that thing[br]if I had a ton of data.

0:18:41.824,0:18:44.000
Oh, here's a conditional[br]expectation function,

0:18:44.000,0:18:47.065
let me plug in a machine[br]learning estimator for that --

0:18:47.065,0:18:48.800
that seems very, very sensible.

0:18:49.000,0:18:52.964
Whereas, you know, [br]if I regress quantity on price

0:18:53.504,0:18:56.000
and say that I used[br]a machine learning method,

0:18:56.300,0:18:58.791
maybe I'm satisfied that [br]that solves the endogeneity problem

0:18:58.791,0:19:01.200
we're usually worried[br]about there... maybe I'm not.

0:19:01.500,0:19:02.649
But, again, that's something

0:19:02.649,0:19:06.300
where the way to address it[br]seems relatively clear.

0:19:06.500,0:19:08.181
It's to find[br]your object of interest

0:19:08.181,0:19:09.779
and think about --

0:19:09.779,0:19:11.489
- Just bring in the economics.

0:19:11.489,0:19:12.741
- Exactly.

0:19:12.741,0:19:14.274
- And think about[br]the heterogeneity,

0:19:14.274,0:19:17.067
but harness the power[br]of the machine learning methods

0:19:17.067,0:19:20.148
for some of the components.

0:19:20.349,0:19:21.388
- Precisely. Exactly.

0:19:21.388,0:19:23.753
So the question of interest

0:19:23.753,0:19:25.767
is the same as the question[br]of interest has always been,

0:19:25.767,0:19:28.493
but we now have better methods[br]for estimating some pieces of this.

0:19:29.900,0:19:32.704
The place that seems[br]harder to forecast

0:19:32.704,0:19:35.816
is obviously there's[br]a huge amount going on

0:19:35.816,0:19:37.500
in the machine learning literature,

0:19:37.500,0:19:40.223
and the limited ways[br]of plugging it in

0:19:40.223,0:19:41.388
that I've referenced so far

0:19:41.388,0:19:43.090
are a limited piece of that.

0:19:43.090,0:19:45.324
So I think there are all sorts[br]of other interesting questions

0:19:45.324,0:19:46.520
about where...

0:19:47.100,0:19:49.300
where does this interaction go? [br]What else can we learn?

0:19:49.300,0:19:52.932
And that's something where[br]I think there's a ton going on,

0:19:52.932,0:19:54.414
which seems very promising,

0:19:54.414,0:19:56.400
and I have no idea[br]what the answer is.

0:19:57.000,0:20:00.297
- No, I totally agree with that,

0:20:00.297,0:20:03.539
but that makes it very exciting.

0:20:03.539,0:20:06.100
And I think there's just[br]a little work to be done there.

0:20:06.600,0:20:08.720
Alright. So I say, [br]he agrees with me there.

0:20:08.720,0:20:10.174
[laughter]

0:20:10.174,0:20:11.633
- I didn't say that per se.

0:20:12.926,0:20:14.419
♪ [music] ♪

0:20:14.419,0:20:16.833
- [Narrator] If you'd like to watch[br]more Nobel Conversations,

0:20:16.833,0:20:18.012
click here.

0:20:18.012,0:20:20.492
Or if you'd like to learn[br]more about econometrics,

0:20:20.500,0:20:23.100
check out Josh's[br]Mastering Econometrics series.

0:20:23.600,0:20:26.569
If you'd like to learn more[br]about Guido, Josh, and Isaiah,

0:20:26.569,0:20:28.550
check out the links[br]in the description.

0:20:28.550,0:20:30.535
♪ [music] ♪