- [Instructor] 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.
- [Instructor] 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?
- [Instructor] Great question.
Who would you compare them to?
- [Student] Those who didn't attend.
- [Instructor] Is attendance random?
- [Camilla] No.
- Selection bias.
- [Instructor] Correct.
- [Otto] What?
- [Instructor] The KIPP offers
are random so we can be confident
of ceteris parabus,
but attendance is not random.
The choice to accept the offer
might be due to characteristics
that are