- [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