How the (Econometric) Sausage is Made

In a recent post , I wrote about the choices we make in statistical analysis along a continuum of simple ⇒   complex methods. Methods, of course, can be simple or complex along a number of different dimensions, and methods that seem simple may actually be quite complex and vice versa. However, a recurring theme in a lot of empirical work is the desire to represent complex phenomena with a single number. We do this with estimands, such as we when we represent heterogeneous causal effects with a single average treatment effect on the treated (ATT), for example. But, we also do this quite frequently with data. We measure complex things such as "inequality" with a single number such as the Gini coefficient, or "democracy" using a polity index , or corruption using Transparency International's Corruption Perceptions Index , or "development" using the Human Development Index . When we attempt to boil complex things down to a single number, this creates a num

Ahhhh, summer has arrived. As department chair, it is a welcome relief. Not that the "endless stream of crap" as I describe it has ceased. But, at least I can deal with it poolside.  Alas, something has already disturbed my summer of contentment. A few colleagues in the SMU business school came to me with some questions regarding the econometrics for a paper they are working on. They noticed something hinky in what they were finding, while following the existing literature. They came to me to try to make sense of it.  If I am right, the issue is very simple, yet reveals a lack of econometric knowledge in the existing literature. Of course, it could be I am the one lacking appropriate knowledge. You, my dedicated readers, can let me know.  Simplifying the issue a bit, the general research question is whether individuals in position of power within a firm (or other organization) matter. The prior literature focuses on managers and CEOs. Do these workers have an "effect&quo

I have an older brother. As any parent with more than one kid will testify, siblings do not always get along. I was particularly devious, though. Even though I was younger, I was waaaaayyyyy more savvy. I used to wrestle him for no reason, pin him down, and torture him. Just like little brothers are supposed to do. When I heard a parent coming to the room, I would quickly flip him over on top of me, hold him so he could not get up, and yell, "HE STARTED IT!" He got in trouble. Every. Single. Time. And I went on about my day. I did confess this to my mom, eventually. Like 30 years later eventually. She was not amused. While I might be alone in this little rouse I had going, I was not original when I blamed someone else for "starting it". Why do kids do that? Well, it's pretty obvious. Even if we are doing something wrong, we think that if someone else did it first, we are in the clear. Kids are smart that way.  While this strategy may work in the short-run, it do