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- [Narrator] The path from cause
to effect is dark and dangerous.
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But the weapons
of Econometrics are strong.
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[Attack] with fierce
and flexible instrumental variables
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when nature blesses you
with fortuitous random assignment.
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[gong rings]
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Randomized trials are the surest
path to ceteris parabus comparisons.
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Alas, this powerful tool
is often unavailable.
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But sometimes, randomization
happens by accident.
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That's when we turn
to instrumental variables,
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IV for short.
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- [Voice whispers] Instrumental
variables.
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- [Narrator] Today's lesson
is the first of two on IV.
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Our first IV lesson begins
with a story of schools.
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- [Josh] Charter schools
are public schools
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freed from daily district oversight
and teacher union contracts.
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The question of whether charters
boost achievement
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is one of the most important
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in the history
of American education reform.
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- The most popular charter schools
have more applicants
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so the luck of the lottery draw
decides who's offered a seat.
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A lot is at stake for the students
vying for their chance.
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Waiting for the lottery results
brings up lots of emotions
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as was captured
in the award-winning documentary
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"Waiting For Superman."
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- [Mother] Don't cry.
You're gonna make Mommy cry.
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Okay?
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- Do charters really provide
a better education?
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Critics most definitely say no,
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arguing that charters enroll
better students to begin with,
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smarter or more motivated
so differences in later outcomes
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reflects selection bias.
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- [Kamal] Wait, this one seems easy.
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In a lottery, winners
are chosen randomly,
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so just compare winners and losers.
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- [Student] Obviously.
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- On the right track, Kamal,
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but charter lotteries
don't force kids into
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or out of a particular school.
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They randomize offers
of a charter seat.
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Some kids get lucky.
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Some kids don't.
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If we just wanted to know
the effect of charter school offers,
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we could treat this
as a randomized trial.
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But we we're interested
in the effects
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of charter school attendance,
not offers.
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And not everyone
who is offered, accepts.
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IV turns the effect of being offered
a charter seat into the effect
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of actually attending
a charter school.
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- [Student] Cool.
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- Oh nice.
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- Let's look at an example,
a charter school from
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the Knowledge Is Power
Program, or KIPP for short.
Marginal Revolution University
