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Mastering 'Metrics: The Path from Cause to Effect

by Joshua D Angrist and Jorn-Steffen Pischke Princeton University Press
Pub Date:
Pbk 304 pages
AU$77.00 NZ$80.00
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Applied econometrics, known to aficionados as 'metrics, encompasses the statistical methods economists use to untangle cause and effect in human affairs. Through accessible discussion and with a dose of kung fu-themed humor, Mastering 'Metrics presents the essential tools of econometric research and demonstrates why econometrics is exciting and useful.
The five most valuable econometric methods, or what the authors call the Furious Five - random assignment, regression, instrumental variables, regression discontinuity designs, and differences in differences - are illustrated through well-crafted real-world examples (vetted for awesomeness by Kung Fu Panda's Jade Palace). Does health insurance make you healthier? Randomized experiments provide answers. Are expensive private colleges and selective public high schools better than more pedestrian institutions? Regression analysis and a regression discontinuity design reveal the surprising truth. When private banks teeter, and depositors take their money and run, should central banks step in to save them? Differences-in-differences analysis of a Depression-era banking crisis offers a response. Could arresting O. J. Simpson have saved his ex-wife's life? Instrumental variables methods instruct law enforcement authorities in how best to respond to domestic abuse.

Wielding econometric tools with skill and confidence, Mastering 'Metrics uses data and statistics to illuminate the path from cause to effect.
•Shows why econometrics is important
•Explains econometric research through humorous and accessible discussion
•Outlines empirical methods central to modern econometric practice
•Works through interesting and relevant real-world examples

List of Figures vii

List of Tables ix

Introduction xi

1 Randomized Trials 1

1.1 In Sickness and in Health (Insurance) 1

1.2 The Oregon Trail 24

Masters of 'Metrics: From Daniel to R. A. Fisher 30

Appendix: Mastering Inference 33

2 Regression 47

2.1 A Tale of Two Colleges 47

2.2 Make Me a Match, Run Me a Regression 55

2.3 Ceteris Paribus? 68

Masters of 'Metrics: Galton and Yule 79

Appendix: Regression Theory 82

3 Instrumental Variables 98

3.1 The Charter Conundrum 99

3.2 Abuse Busters 115

3.3 The Population Bomb 123

Masters of 'Metrics: The Remarkable Wrights 139

Appendix: IV Theory 142

4 Regression Discontinuity Designs 147

4.1 Birthdays and Funerals 148

4.2 The Elite Illusion 164

Masters of 'Metrics: Donald Campbell 175

5 Differences-in-Differences 178

5.1 A Mississippi Experiment 178

5.2 Drink, Drank, . . . 191

Masters of 'Metrics: John Snow 204

Appendix: Standard Errors for Regression DD 205

6 The Wages of Schooling 209

6.1 Schooling, Experience, and Earnings 209

6.2 Twins Double the Fun 217

6.3 Econometricians Are Known by Their . . . Instruments 223

6.4 Rustling Sheepskin in the Lone Star State 235

Appendix: Bias from Measurement Error 240

Abbreviations and Acronyms 245

Empirical Notes 249

Acknowledgments 269

Index 271

"I would be hard pressed to name another econometrics book that can be read for enjoyment yet provides useful quantitative insights."--M.S.R., Financial Analysts Journal
Joshua D. Angrist is the Ford Professor of Economics at the Massachusetts Institute of Technology. Jorn-Steffen Pischke is professor of economics at the London School of Economics and Political Science. They are the coauthors of ''Mostly Harmless Econometrics ''(Princeton).