1 99:59:59,999 --> 99:59:59,999 - [Instructor] The path from cause to effect is dark and dangerous. 2 99:59:59,999 --> 99:59:59,999 But the weapons of Econometrics are strong. 3 99:59:59,999 --> 99:59:59,999 [Attack] with fierce and flexible instrumental variables 4 99:59:59,999 --> 99:59:59,999 when nature blesses you with fortuitous random assignment. 5 99:59:59,999 --> 99:59:59,999 [gong rings] 6 99:59:59,999 --> 99:59:59,999 Randomized trials are the surest path to ceteris parabus comparisons. 7 99:59:59,999 --> 99:59:59,999 Alas, this powerful tool is often unavailable. 8 99:59:59,999 --> 99:59:59,999 But sometimes, randomization happens by accident. 9 99:59:59,999 --> 99:59:59,999 That's when we turn to instrumental variables, 10 99:59:59,999 --> 99:59:59,999 IV for short. 11 99:59:59,999 --> 99:59:59,999 - [Voice whispers] Instrumental variables. 12 99:59:59,999 --> 99:59:59,999 - [Instructor] Today's lesson is the first of two on IV. 13 99:59:59,999 --> 99:59:59,999 Our first IV lesson begins with a story of schools. 14 99:59:59,999 --> 99:59:59,999 - [Josh] Charter schools are public schools 15 99:59:59,999 --> 99:59:59,999 freed from daily district oversight and teacher union contracts. 16 99:59:59,999 --> 99:59:59,999 The question of whether charters boost achievement 17 99:59:59,999 --> 99:59:59,999 is one of the most important 18 99:59:59,999 --> 99:59:59,999 in the history of American education reform. 19 99:59:59,999 --> 99:59:59,999 - The most popular charter schools have more applicants 20 99:59:59,999 --> 99:59:59,999 so the luck of the lottery draw decides who's offered a seat. 21 99:59:59,999 --> 99:59:59,999 A lot is at stake for the students vying for their chance. 22 99:59:59,999 --> 99:59:59,999 Waiting for the lottery results brings up lots of emotions 23 99:59:59,999 --> 99:59:59,999 as was captured in the award-winning documentary 24 99:59:59,999 --> 99:59:59,999 "Waiting For Superman." 25 99:59:59,999 --> 99:59:59,999 - [Mother] Don't cry. You're gonna make Mommy cry. 26 99:59:59,999 --> 99:59:59,999 Okay? 27 99:59:59,999 --> 99:59:59,999 - Do charters really provide a better education? 28 99:59:59,999 --> 99:59:59,999 Critics most definitely say no, 29 99:59:59,999 --> 99:59:59,999 arguing that charters enroll better students to begin with, 30 99:59:59,999 --> 99:59:59,999 smarter or more motivated so differences in later outcomes 31 99:59:59,999 --> 99:59:59,999 reflects selection bias. 32 99:59:59,999 --> 99:59:59,999 - [Kamal] Wait, this one seems easy. 33 99:59:59,999 --> 99:59:59,999 In a lottery, winners are chosen randomly, 34 99:59:59,999 --> 99:59:59,999 so just compare winners and losers. 35 99:59:59,999 --> 99:59:59,999 - [Student] Obviously. 36 99:59:59,999 --> 99:59:59,999 - On the right track, Kamal, 37 99:59:59,999 --> 99:59:59,999 but charter lotteries don't force kids into 38 99:59:59,999 --> 99:59:59,999 or out of a particular school. 39 99:59:59,999 --> 99:59:59,999 They randomize offers of a charter seat. 40 99:59:59,999 --> 99:59:59,999 Some kids get lucky. 41 99:59:59,999 --> 99:59:59,999 Some kids don't. 42 99:59:59,999 --> 99:59:59,999 If we just wanted to know the effect of charter school offers, 43 99:59:59,999 --> 99:59:59,999 we could treat this as a randomized trial. 44 99:59:59,999 --> 99:59:59,999 But we we're interested in the effects 45 99:59:59,999 --> 99:59:59,999 of charter school attendance, not offers. 46 99:59:59,999 --> 99:59:59,999 And not everyone who is offered, accepts. 47 99:59:59,999 --> 99:59:59,999 IV turns the effect of being offered a charter seat into the effect 48 99:59:59,999 --> 99:59:59,999 of actually attending a charter school. 49 99:59:59,999 --> 99:59:59,999 - [Student] Cool. 50 99:59:59,999 --> 99:59:59,999 - Oh nice. 51 99:59:59,999 --> 99:59:59,999 - Let's look at an example, a charter school from 52 99:59:59,999 --> 99:59:59,999 the Knowledge Is Power Program, or KIPP for short. 53 99:59:59,999 --> 99:59:59,999 This KIPP school is in Lynn, 54 99:59:59,999 --> 99:59:59,999 a faded industrial town on the coast of Massachusetts. 55 99:59:59,999 --> 99:59:59,999 The school has more applicants than seats 56 99:59:59,999 --> 99:59:59,999 and therefore picks its students using a lottery. 57 99:59:59,999 --> 99:59:59,999 From 2005 to 2008, 371 fourth and fifth graders 58 99:59:59,999 --> 99:59:59,999 put their names in the KIPP/Lynn lottery, 59 99:59:59,999 --> 99:59:59,999 253 students won a seat at KIPP, 60 99:59:59,999 --> 99:59:59,999 118 students lost. 61 99:59:59,999 --> 99:59:59,999 A year later, lottery winners had much higher match scores 62 99:59:59,999 --> 99:59:59,999 than lottery losers. 63 99:59:59,999 --> 99:59:59,999 But remember, we're not trying to figure out 64 99:59:59,999 --> 99:59:59,999 whether winning a lottery makes you better at math. 65 99:59:59,999 --> 99:59:59,999 We want to know if attending KIPP makes you better at math. 66 99:59:59,999 --> 99:59:59,999 Of the 253 lottery winners, only 199 actually went to KIPP. 67 99:59:59,999 --> 99:59:59,999 The others chose a traditional public school. 68 99:59:59,999 --> 99:59:59,999 Similarly of the 118 lottery losers, a few actually ended up at KIPP. 69 99:59:59,999 --> 99:59:59,999 They got an offer later. 70 99:59:59,999 --> 99:59:59,999 So what was the effect of test scores of actually attending KIPP? 71 99:59:59,999 --> 99:59:59,999 - [Student] Why can't we just measure their math scores? 72 99:59:59,999 --> 99:59:59,999 - [Instructor] Great question. 73 99:59:59,999 --> 99:59:59,999 Who would you compare them to? 74 99:59:59,999 --> 99:59:59,999 - [Student] Those who didn't attend. 75 99:59:59,999 --> 99:59:59,999 - [Instructor] Is attendance random? 76 99:59:59,999 --> 99:59:59,999 - [Camilla] No. 77 99:59:59,999 --> 99:59:59,999 - Selection bias. 78 99:59:59,999 --> 99:59:59,999 - [Instructor] Correct. 79 99:59:59,999 --> 99:59:59,999 - [Otto] What? 80 99:59:59,999 --> 99:59:59,999 - [Instructor] The KIPP offers are random so we can be confident 81 99:59:59,999 --> 99:59:59,999 of ceteris parabus, but attendance is not random. 82 99:59:59,999 --> 99:59:59,999 The choice to accept the offer might be due to characteristics 83 99:59:59,999 --> 99:59:59,999 that are