- [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.
This KIPP school is in Lynn,
a faded industrial town on the coast of Massachusetts.
The school has more applicants than seats
and therefore picks its students using a lottery.
From 2005 to 2008, 371 fourth and fifth graders
put their names in the KIPP/Lynn lottery,
253 students won a seat at KIPP,
118 students lost.
A year later, lottery winners had much higher match scores
than lottery losers.
But remember, we're not trying to figure out
whether winning a lottery makes you better at math.
We want to know if attending KIPP makes you better at math.
Of the 253 lottery winners, only 199 actually went to KIPP.
The others chose a traditional public school.
Similarly of the 118 lottery losers, a few actually ended up at KIPP.
They got an offer later.
So what was the effect of test scores of actually attending KIPP?
- [Student] Why can't we just measure their math scores?
- [Narrator] Great question.
Who would you compare them to?
- [Student] Those who didn't attend.
- [Narrator] Is attendance random?