WEBVTT 99:59:59.999 --> 99:59:59.999 - [Instructor] The path from cause to effect is dark and dangerous. 99:59:59.999 --> 99:59:59.999 But the weapons of Econometrics are strong. 99:59:59.999 --> 99:59:59.999 [Attack] with fierce and flexible instrumental variables 99:59:59.999 --> 99:59:59.999 when nature blesses you with fortuitous random assignment. 99:59:59.999 --> 99:59:59.999 [gong rings] 99:59:59.999 --> 99:59:59.999 Randomized trials are the surest path to ceteris parabus comparisons. 99:59:59.999 --> 99:59:59.999 Alas, this powerful tool is often unavailable. 99:59:59.999 --> 99:59:59.999 But sometimes, randomization happens by accident. 99:59:59.999 --> 99:59:59.999 That's when we turn to instrumental variables, 99:59:59.999 --> 99:59:59.999 IV for short. 99:59:59.999 --> 99:59:59.999 - [Voice whispers] Instrumental variables. 99:59:59.999 --> 99:59:59.999 - [Instructor] Today's lesson is the first of two on IV. 99:59:59.999 --> 99:59:59.999 Our first IV lesson begins with a story of schools. 99:59:59.999 --> 99:59:59.999 - [Josh] Charter schools are public schools 99:59:59.999 --> 99:59:59.999 freed from daily district oversight and teacher union contracts. 99:59:59.999 --> 99:59:59.999 The question of whether charters boost achievement 99:59:59.999 --> 99:59:59.999 is one of the most important 99:59:59.999 --> 99:59:59.999 in the history of American education reform. 99:59:59.999 --> 99:59:59.999 - The most popular charter schools have more applicants 99:59:59.999 --> 99:59:59.999 so the luck of the lottery draw decides who's offered a seat. 99:59:59.999 --> 99:59:59.999 A lot is at stake for the students vying for their chance. 99:59:59.999 --> 99:59:59.999 Waiting for the lottery results brings up lots of emotions 99:59:59.999 --> 99:59:59.999 as was captured in the award-winning documentary 99:59:59.999 --> 99:59:59.999 "Waiting For Superman." 99:59:59.999 --> 99:59:59.999 - [Mother] Don't cry. You're gonna make Mommy cry. 99:59:59.999 --> 99:59:59.999 Okay? 99:59:59.999 --> 99:59:59.999 - Do charters really provide a better education? 99:59:59.999 --> 99:59:59.999 Critics most definitely say no, 99:59:59.999 --> 99:59:59.999 arguing that charters enroll better students to begin with, 99:59:59.999 --> 99:59:59.999 smarter or more motivated so differences in later outcomes 99:59:59.999 --> 99:59:59.999 reflects selection bias. 99:59:59.999 --> 99:59:59.999 - [Kamal] Wait, this one seems easy. 99:59:59.999 --> 99:59:59.999 In a lottery, winners are chosen randomly, 99:59:59.999 --> 99:59:59.999 so just compare winners and losers. 99:59:59.999 --> 99:59:59.999 - [Student] Obviously. 99:59:59.999 --> 99:59:59.999 - On the right track, Kamal, 99:59:59.999 --> 99:59:59.999 but charter lotteries don't force kids into 99:59:59.999 --> 99:59:59.999 or out of a particular school. 99:59:59.999 --> 99:59:59.999 They randomize offers of a charter seat. 99:59:59.999 --> 99:59:59.999 Some kids get lucky. 99:59:59.999 --> 99:59:59.999 Some kids don't. 99:59:59.999 --> 99:59:59.999 If we just wanted to know the effect of charter school offers, 99:59:59.999 --> 99:59:59.999 we could treat this as a randomized trial. 99:59:59.999 --> 99:59:59.999 But we we're interested in the effects 99:59:59.999 --> 99:59:59.999 of charter school attendance, not offers. 99:59:59.999 --> 99:59:59.999 And not everyone who is offered, accepts. 99:59:59.999 --> 99:59:59.999 IV turns the effect of being offered a charter seat into the effect 99:59:59.999 --> 99:59:59.999 of actually attending a charter school. 99:59:59.999 --> 99:59:59.999 - [Student] Cool. 99:59:59.999 --> 99:59:59.999 - Oh nice. 99:59:59.999 --> 99:59:59.999 - Let's look at an example, a charter school from 99:59:59.999 --> 99:59:59.999 the Knowledge Is Power Program, or KIPP for short. 99:59:59.999 --> 99:59:59.999 This KIPP school is in Lynn, 99:59:59.999 --> 99:59:59.999 a faded industrial town on the coast of Massachusetts. 99:59:59.999 --> 99:59:59.999 The school has more applicants than seats 99:59:59.999 --> 99:59:59.999 and therefore picks its students using a lottery. 99:59:59.999 --> 99:59:59.999 From 2005 to 2008, 371 fourth and fifth graders 99:59:59.999 --> 99:59:59.999 put their names in the KIPP/Lynn lottery, 99:59:59.999 --> 99:59:59.999 253 students won a seat at KIPP, 99:59:59.999 --> 99:59:59.999 118 students lost. 99:59:59.999 --> 99:59:59.999 A year later, lottery winners had much higher match scores 99:59:59.999 --> 99:59:59.999 than lottery losers. 99:59:59.999 --> 99:59:59.999 But remember, we're not trying to figure out 99:59:59.999 --> 99:59:59.999 whether winning a lottery makes you better at math. 99:59:59.999 --> 99:59:59.999 We want to know if attending KIPP makes you better at math. 99:59:59.999 --> 99:59:59.999 Of the 253 lottery winners, only 199 actually went to KIPP. 99:59:59.999 --> 99:59:59.999 The others chose a traditional public school. 99:59:59.999 --> 99:59:59.999 Similarly of the 118 lottery losers, a few actually ended up at KIPP. 99:59:59.999 --> 99:59:59.999 They got an offer later. 99:59:59.999 --> 99:59:59.999 So what was the effect of test scores of actually attending KIPP? 99:59:59.999 --> 99:59:59.999 - [Student] Why can't we just measure their math scores? 99:59:59.999 --> 99:59:59.999 - [Instructor] Great question. 99:59:59.999 --> 99:59:59.999 Who would you compare them to? 99:59:59.999 --> 99:59:59.999 - [Student] Those who didn't attend. 99:59:59.999 --> 99:59:59.999 - [Instructor] Is attendance random? 99:59:59.999 --> 99:59:59.999 - [Camilla] No. 99:59:59.999 --> 99:59:59.999 - Selection bias. 99:59:59.999 --> 99:59:59.999 - [Instructor] Correct. 99:59:59.999 --> 99:59:59.999 - [Otto] What? 99:59:59.999 --> 99:59:59.999 - [Instructor] The KIPP offers are random so we can be confident 99:59:59.999 --> 99:59:59.999 of ceteris parabus, but attendance is not random. 99:59:59.999 --> 99:59:59.999 The choice to accept the offer might be due to characteristics 99:59:59.999 --> 99:59:59.999 that are