Tag Archives: Statistics & Econometrics

Why data is not enough to answer scientific questions Ironically, the need for a theory of causation began to surface at the same time that statistics came into being. In fact modern statistics hatched out of the causal questions that Galton and Pearson asked about heredity and out of their ingenious attempts to answer them from cross-generation data. Unfortunately, they failed in this endeavor and, rather than pause to ask “Why?”, they declared those...

Der Zusammenhang zwischen Musikgeschmack und Intelligenz  [embedded content] Advertisements

Regression analysis — a case of wishful thinking The impossibility of proper specification is true generally in regression analyses across the social sciences, whether we are looking at the factors affecting occupational status, voting behavior, etc. The problem is that as implied by the conditions for regression analyses to yield accurate, unbiased estimates, you need to investigate a phenomenon that has underlying mathematical regularities – and,...

The main reason why almost all econometric models are wrong How come that econometrics and statistical regression analyses still have not taken us very far in discovering, understanding, or explaining causation in socio-economic contexts? That is the question yours truly has tried to answer in an article published in the latest issue of World Economic Association Commentaries: The processes that generate socio-economic data in the real world cannot just be...

What instrumental​ variables analysis is all about  [embedded content] Advertisements

In his new history of experimental social science — Randomistas: How radical researchers are changing our world — Andrew Leigh gives an introduction to the RCT (randomized controlled trial) method for conducting experiments in medicine, psychology, development economics, and policy evaluation. Although it mentions there are critiques that can be waged against it, the author does not let that shadow his overwhelmingly enthusiastic view on RCT. Among mainstream economists, this...

Econometrics cannot establish the truth value of a fact. Never has. Never will. There seems to be a pervasive human aversion to uncertainty, and one way to reduce feelings of uncertainty is to invest faith in deduction as a sufficient guide to truth. Unfortunately, such faith is as logically unjustified as any religious creed, since a deduction produces certainty about the real world only when its...

The illusion of certainty  [embedded content] Advertisements

Probability and rationality — trickier than you might think The Coin-tossing Problem My friend Bengt says that on the first day he got the following sequence of Heads and Tails when tossing a coin: H H H H H H H H H H And on the second day he says that he got the following sequence: H T T H H T T H T H Which day-report makes you suspicious? Most people I ask this question says the first day-report looks suspicious. But actually,​ both days are equally...

The main reason why almost all econometric models are wrong Since econometrics doesn’t content itself with only making optimal predictions, but also aspires to explain things in terms of causes and effects, econometricians need loads of assumptions — most important of these are additivity and linearity. Important, simply because if they are not true, your model is invalid and descriptively incorrect.  And when the model is wrong — well, then it’s wrong. The...