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Introduction to Instrumental Variables (IV)

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    - [Instructor] 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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    - [Instructor] 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.
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    This KIPP school is in Lynn,
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    a faded industrial town
    on the coast of Massachusetts.
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    The school has
    more applicants than seats
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    and therefore picks its students
    using a lottery.
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    From 2005 to 2008,
    371 fourth and fifth graders
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    put their names
    in the KIPP/Lynn lottery,
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    253 students won a seat at KIPP,
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    118 students lost.
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    A year later, lottery winners had
    much higher match scores
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    than lottery losers.
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    But remember,
    we're not trying to figure out
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    whether winning a lottery
    makes you better at math.
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    We want to know if attending KIPP
    makes you better at math.
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    Of the 253 lottery winners,
    only 199 actually went to KIPP.
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    The others chose
    a traditional public school.
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    Similarly of the 118 lottery losers,
    a few actually ended up at KIPP.
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    They got an offer later.
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    So what was the effect of test scores
    of actually attending KIPP?
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    - [Student] Why can't we just
    measure their math scores?
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    - [Instructor] Great question.
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    Who would you compare them to?
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    - [Student] Those who didn't attend.
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    - [Instructor] Is attendance random?
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    - [Camilla] No.
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    - Selection bias.
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    - [Instructor] Correct.
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    - [Otto] What?
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    - [Instructor] The KIPP offers
    are random so we can be confident
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    of ceteris parabus,
    but attendance is not random.
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    The choice to accept the offer
    might be due to characteristics
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    that are
Title:
Introduction to Instrumental Variables (IV)
Description:

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Video Language:
English
Team:
Marginal Revolution University
Project:
Mastering Econometrics
Duration:
12:57

English subtitles

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