October 12, 2011

Interaction terms in nonlinear regression models

Say you wish to estimate a model with a binary dependent variable. You recall that you ought not use OLS primarily because OLS will not bound your predicted values between zero and one. So you use a nonlinear variant, say, probit. But you also recall that it doesn’t matter much if you just use OLS and ignore the binary nature of your dependent variable so long as you are interested in estimating the effects of your covariates, not generating predicted values.
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October 5, 2011

Tips on estimating models and producing publication-ready tables using Stata

Frances Woolley has posted some great tips on how to clean data in Stata. This post follows up with some tips on how to quickly and robustly estimate models as you vary specifications, and on how to get your results in a publication-ready form. The .do file described in this post can be downloaded by clicking here, you must change the extension from .doc to .do.

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October 3, 2011

Will Yelp kill Applebee’s?

A new working paper by Michael Luca estimates the effect of Yelp reviews on Seattle restaurant revenues. Disentangling causality here is difficult, as even if reviews have no effect on revenues we would expect to observe reviews and revenues both moving with changes in underlying relative quality. Luca exploits a quirk in the way Yelp presents information: average scores are reported rounded in 0.5 star bins on a 5 star scale. For example, underlying average scores of 2.76 and 3.24 are both reported as “3 stars,” but a good review which bumps the average up to 3.25 bumps the reported score up to 3.5 stars. The estimates show that Yelp reviews do have a substantial effect on revenues.
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October 3, 2011

Propensity score matching: not magic

Nice quote from EconJeff on propensity score matching. The idea that somehow matching buys you causality in a situation in which you’d snicker at the idea that OLS does seems to be distressingly common.

Matching is not a design or an identifying assumption. Rather, it is one of several estimators that can be use when assuming selection on observed variables or unconfoundedness (or ignorability, or conditional independence, or whatever else your particular discipline or sub-field happens to call it this week). The key to evaluating an analysis based on an assumption of selection on observed variables is a careful consideration of the set of conditioning variables used in the analysis to deal with the problem of non-random selection into treatment. Estimator choice, e.g. matching versus linear regression versus inverse propensity weighting, is not unimportant, and can be very important for specific data generating processes, but what really matters in general is the set of conditioning variables.

October 1, 2011

Chetty, Friedman, and Saez on detecting knowledge differences with observational data

Models usually implicitly assume that people are aware of the incentives they face. People in a labor supply model, for example, usually make their decisions based on the actual schedule, not their subjective impression of the schedule. But many people may not even be aware of changes in income taxes schedules: how can they then respond to changes in the schedule? In current research, Raj Chetty, John Friedman, and Emmanuel Saez turn this apparent difficulty into an advantage. They estimate the causal effect of changes in an aspect of the income tax schedule on labor supply. Since the policy they study is Federal, there is not much variation to identify the effects of interest using traditional methods, but the authors show how to recover regional variation in knowledge of the schedule. The interaction of knowledge and the schedule then varies across regions and time even though the schedule only varies over time, so there’s lots more variation to identify the effect of the schedule on labor supply.

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September 29, 2011

A review of Economyths: Ten Ways Economics Gets it Wrong, by David Orrell

David Orrell, a mathematician who works on biological problems, recently published a book called Economyths: Ten Ways Economics Gets It Wrong. Economyths is a terrible, willfully ignorant, deeply anti-intellectual book. The characterization of economic thought presented is ridiculous. The level of scholarship is abysmal.

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September 27, 2011

Manski and Pepper on the deterrent effect of the death penalty

Chuck Manski and John Pepper have issued a new working paper on the effect of the death penalty on homicide rates. If you’re interested in the issue the paper is of course something you should read, but it’s also a great, readable, and not overly technical exposition by way of example of some of Manski’s work over the last couple of decades on partial identification.

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September 26, 2011

Anti-economist watch: David Sloan Wilson edition

It is often, correctly I think, noted that economists are relatively bad at communicating results from economic research to the general public. A related failure is economists tend to be relatively bad at squashing ridiculous criticism of economics. Economics, biology, and climatology are all disciplines which tend to attract lots of craptastic criticism, and for similar reasons. One might think that biologists in particular might tread carefully when attacking other disciplines, given how much nonsense is written by creationists and their fellow travellers. Alas, some of the most egregiously poorly-aimed attacks on economics come from biologists, and not just David Suzuki.

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September 25, 2011

Does failure to understand probability also increase belief in God?

A recently published study, Shenhav et al (2011), “Divine Intuition: Cognitive Style Influences Belief in God,” presents evidence on the relationship between intuitive thinking and belief in God. This post points out that it’s not obvious that it isn’t really just general intelligence driving the results from observational data. Because general intelligence is measured using two noisy, short, subcomponents of a much longer IQ test, it’s reasonable to guess that much of the variation in correct answers to the cognitive style questions is correlated with general intelligence even after conditioning on the available IQ test scores. Using GSS data and similar methods to Shenhav’s Study 1, it also appears that failing to understand basic notions of probability predicts belief in God after holding intelligence measures fixed.

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September 5, 2011

Trucks and SUVs should be heavily taxed.

Large, heavy vehicles are safe, as everyone knows. If you’re going to be in an accident, would you rather be in a Miata or an Escalade? More large vehicles on the road make us safer, and we should worry about anything which reduces vehicle sizes. Notably, fuel economy standards decrease vehicle size, so we will become less safe as fuel economy standards become more strict. See for example Crandall and Graham (1989).

Or so conventional wisdom goes, but it turns out the truth is more subtle, according to recent research.

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