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

But the weapons 
of Econometrics are strong.

[Attack] with fierce 
and flexible instrumental variables

when nature blesses you 
with fortuitous random assignment.

[gong rings]

Randomized trials are the surest 
path to ceteris parabus comparisons.

Alas, this powerful tool 
is often unavailable.

But sometimes, randomization 
happens by accident.

That's when we turn 
to instrumental variables,

IV for short.

- [Voice whispers] Instrumental 
variables.

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

Our first IV lesson begins 
with a story of schools.

- [Josh] Charter schools 
are public schools

freed from daily district oversight
and teacher union contracts.

The question of whether charters 
boost achievement

is one of the most important

in the history 
of American education reform.

- The most popular charter schools
have more applicants

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

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

Waiting for the lottery results 
brings up lots of emotions

as was captured 
in the award-winning documentary

"Waiting For Superman."

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

Okay?

- Do charters really provide
a better education?

Critics most definitely say no,

arguing that charters enroll 
better students to begin with,

smarter or more motivated
so differences in later outcomes

reflects selection bias.

- [Kamal] Wait, this one seems easy.

In a lottery, winners 
are chosen randomly,

so just compare winners and losers.

- [Student] Obviously.

- On the right track, Kamal,

but charter lotteries 
don't force kids into

or out of a particular school.

They randomize offers 
of a charter seat.

Some kids get lucky.

Some kids don't.

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

we could treat this 
as a randomized trial.

But we we're interested 
in the effects

of charter school attendance,
not offers.

And not everyone 
who is offered, accepts.

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

of actually attending 
a charter school.

- [Student] Cool.

- Oh nice.

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

the Knowledge Is Power 
Program, or KIPP for short.