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Tantalus on the Road to Asymptopia

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  • Edward E. Leamer

Abstract

My first reaction to "The Credibility Revolution in Empirical Economics," authored by Joshua D. Angrist and J�rn-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.

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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 24 (2010)
Issue (Month): 2 (Spring)
Pages: 31-46

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Handle: RePEc:aea:jecper:v:24:y:2010:i:2:p:31-46

Note: DOI: 10.1257/jep.24.2.31
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  1. Joshua D. Angrist & Guido W. Imbens, 1995. "Identification and Estimation of Local Average Treatment Effects," NBER Technical Working Papers 0118, National Bureau of Economic Research, Inc.
  2. Gary Chamberlain & Guido W. Imbens, 1996. "Hierarchical Bayes Models with Many Instrumental Variables," Harvard Institute of Economic Research Working Papers 1781, Harvard - Institute of Economic Research.
  3. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
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  1. O “núcleo” da inflação no Brasil.
    by ? in Análise Real on 2012-04-12 12:00:00
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  14. Labonne, Julien, 2013. "The local electoral impacts of conditional cash transfers," Journal of Development Economics, Elsevier, vol. 104(C), pages 73-88.
  15. Niu, Yongzhi, 2010. "Taxpayers' Response to Warnings of a Possible Tax Audit: Do They Change Their Compliance Behavior?," MPRA Paper 25551, University Library of Munich, Germany.
  16. Gerry, Christopher J., 2012. "The journals are full of great studies but can we believe the statistics? Revisiting the Mass Privatisation – Mortality Debate," Social Science & Medicine, Elsevier, vol. 75(1), pages 14-22.
  17. van Dijk, M.A., 2014. "The Social Value of Finance," ERIM Inaugural Address Series Research in Management EIA-2014-055-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam..

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