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- [Narrator] The path from cause 
to effect is dark and dangerous.

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But the weapons 
of Econometrics are strong.

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[Attack] with fierce 
and flexible instrumental variables

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when nature blesses you 
with fortuitous random assignment.

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[gong rings]

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Randomized trials are the surest 
path to ceteris parabus comparisons.

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Alas, this powerful tool 
is often unavailable.

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But sometimes, randomization 
happens by accident.

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That's when we turn 
to instrumental variables,

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IV for short.

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- [Voice whispers] Instrumental 
variables.

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

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Our first IV lesson begins 
with a story of schools.

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- [Josh] Charter schools 
are public schools

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freed from daily district oversight
and teacher union contracts.

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The question of whether charters 
boost achievement

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is one of the most important

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in the history 
of American education reform.

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- The most popular charter schools
have more applicants

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

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

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Waiting for the lottery results 
brings up lots of emotions

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as was captured 
in the award-winning documentary

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"Waiting For Superman."

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

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Okay?

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- Do charters really provide
a better education?

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Critics most definitely say no,

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arguing that charters enroll 
better students to begin with,

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smarter or more motivated
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 
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 
don't force kids into

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or out of a particular school.

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They randomize offers 
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 
the effect of charter school offers,

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we could treat this 
as a randomized trial.

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But we we're interested 
in the effects

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of charter school attendance,
not offers.

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And not everyone 
who is offered, accepts.

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IV turns the effect of being offered
a charter seat into the effect

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of actually attending 
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, 
a charter school from

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the Knowledge Is Power 
Program, or KIPP for short.