9:59:59.000,9:59:59.000
- [Narrator] The path from cause [br]to effect is dark and dangerous.

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But the weapons [br]of Econometrics are strong.

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[Attack] with fierce [br]and flexible instrumental variables

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when nature blesses you [br]with fortuitous random assignment.

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[gong rings]

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Randomized trials are the surest [br]path to ceteris parabus comparisons.

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Alas, this powerful tool [br]is often unavailable.

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But sometimes, randomization [br]happens by accident.

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That's when we turn [br]to instrumental variables,

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IV for short.

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- [Voice whispers] Instrumental [br]variables.

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- [Narrator] Today's lesson [br]is the first of two on IV.

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Our first IV lesson begins [br]with a story of schools.

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- [Josh] Charter schools [br]are public schools

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freed from daily district oversight[br]and teacher union contracts.

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The question of whether charters [br]boost achievement

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is one of the most important

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in the history [br]of American education reform.

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- The most popular charter schools[br]have more applicants

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so the luck of the lottery draw [br]decides who's offered a seat.

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A lot is at stake for the students [br]vying for their chance.

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Waiting for the lottery results [br]brings up lots of emotions

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as was captured [br]in the award-winning documentary

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"Waiting For Superman."

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- [Mother] Don't cry.[br]You're gonna make Mommy cry.

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Okay?

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- Do charters really provide[br]a better education?

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Critics most definitely say no,

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arguing that charters enroll [br]better students to begin with,

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smarter or more motivated[br]so differences in later outcomes

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reflects selection bias.

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- [Kamal] Wait, this one seems easy.

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In a lottery, winners [br]are chosen randomly,

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so just compare winners and losers.

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- [Student] Obviously.

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- On the right track, Kamal,

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but charter lotteries [br]don't force kids into

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or out of a particular school.

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They randomize offers [br]of a charter seat.

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Some kids get lucky.

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Some kids don't.

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If we just wanted to know [br]the effect of charter school offers,

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we could treat this [br]as a randomized trial.

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But we we're interested [br]in the effects

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of charter school attendance,[br]not offers.

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And not everyone [br]who is offered, accepts.

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IV turns the effect of being offered[br]a charter seat into the effect

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of actually attending [br]a charter school.

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- [Student] Cool.

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- Oh nice.

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- Let's look at an example, [br]a charter school from

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the Knowledge Is Power [br]Program, or KIPP for short.