Tantalus on the Road to Asymptopia
Abstract:My first reaction to "The Credibility Revolution in Empirical Economics," authored by Joshua D. Angrist and Jörn-Steffen Pischke, was: Wow! This paper makes a stunningly good case for relying on purposefully randomized or accidentally randomized experiments to relieve the doubts that afflict inferences from nonexperimental data. On further reflection, I realized that I may have been overcome with irrational exuberance. Moreover, with this great honor bestowed on my "con" article, I couldn't easily throw this child of mine overboard. As Angrist and Pischke persuasively argue, either purposefully randomized experiments or accidentally randomized "natural" experiments can be extremely helpful, but Angrist and Pischke seem to me to overstate the potential benefits of the approach. I begin with some thoughts about the inevitable limits of randomization, and the need for sensitivity analysis in this area, as in all areas of applied empirical work. I argue that the recent financial catastrophe is a powerful illustration of the fact that extrapolating from natural experiments will inevitably be hazardous. I discuss how the difficulties of applied econometric work cannot be evaded with econometric innovations, offering as examples some under-recognized difficulties with instrumental variables and robust standard errors. I conclude with comments about the shortcomings of an experimentalist paradigm as applied to macroeconomics, and some warnings about the willingness of applied economists to apply push-button methodologies without sufficient hard thought regarding their applicability and shortcomings.
Document Type: Research Article
Publication date: 2010-03-01
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- The Journal of Economic Perspectives (JEP) attempts to fill a gap between the general interest press and most other academic economics journals. The journal aims to publish articles that will serve several goals: to synthesize and integrate lessons learned from active lines of economic research; to provide economic analysis of public policy issues; to encourage cross-fertilization of ideas among the fields of thinking; to offer readers an accessible source for state-of-the-art economic thinking; to suggest directions for future research; to provide insights and readings for classroom use; and to address issues relating to the economics profession.
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