Working Paper: NBER ID: w16678
Authors: Randall Morck; Bernard Yeung
Abstract: Economics and history both strive to understand causation: economics using instrumental variables econometrics and history by weighing the plausibility of alternative narratives. Instrumental variables can lose value with repeated use because of an econometric tragedy of the commons bias: each successful use of an instrument potentially creates an additional latent variable bias problem for all other uses of that instrument - past and future. Economists should therefore consider historians' approach to inferring causality from detailed context, the plausibility of alternative narratives, external consistency, and recognition that free will makes human decisions intrinsically exogenous.
Keywords: No keywords provided
JEL Codes: C01; C21; C31; G0; M2; N0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Instrumental variables (C36) | Loss of validity (G33) |
| Repeated use of instrumental variables (C36) | Econometric tragedy of the commons (D69) |
| Historical context (N93) | Infer causality (C22) |
| Correlation (C10) | Causation (C10) |
| Historical narratives (N01) | Insights into causal relationships (C22) |
| Attention to context and competing narratives (Z13) | Understanding causation in economics (E65) |