Hi there. Thanks again for joining me today. We're going to be talking about natural experiments and
They're importance and relevance to econometrics
so like last time we were thinking about the factors which might affect the lifetime income and
potential of an individual and we spoke about
Lifetime income potentially depending on whether an individual is
participating in the military and
But it also might depend on a whole host of other factors and which might be determined by the lifetime income
potential so that might be things like education and innate ability and
And the difficulty here if we were trying to evaluate the effect of military participation on lifetime income is
that we spoke that and
People with lower lifetime income potential in the first place might join the military
so the problem here is that
the observed differences between the Civilian and military groups in
Average lifetime income might be due to not solely due to this in the effect of individuals joining the military
but also due to the fact that individuals that sign up the military in the first place have lower income potential and
So this sort of problem has a name in econometrics, and we call it a selection bias
which means that the individuals which participated in a
Experiment or quasi experiment in this case
Might and be a different
Type of individual to those which are part of the control group so the individuals who were civilians in this case
so it's not a very pure experiment and nor does it allow us to exactly unpick the causal effect of
joining the military on lifetime income
however a very sort of intelligent and
use of a natural experiment and was used by
Angrist,
Joshua Angrist who's a professor at MIT
and who did a bit of empirical research in 1990 which looked at the Vietnam war [and]
and
what the effects of military participation had on those individuals lifetime income potentials and
he took advantage of a
Natural experiment in this case which was to do with the draft process
so in 1969 and
the
Military and the way in which individuals were conscripted because conscription was in play
to the military was and people were assigned a number and
that number
corresponded or went from 1 to
366 [Correspond] each number corresponding [to] a birthday and
all these numbers were then put into a box and
one was pulled out at Random and
if
So if the number two is for example pulled out of the box
Then all those individuals that had a birthday on the 2nd of January
would then be conscripted or
drafted to Join the military [I]
Notice that this draft process is completely independent of the
Individuals lifetime income potential it didn't it didn't matter. What sort of setup,
What sort of part of society you were drafted from
you had to join the military if you had a birthday on the 2nd of January and
Angrist used this in his empirical research as a sort of quasi experiment or
natural experiment to ascertain and
the effects of
military participation on individuals lifetime income
capabilities
and note that the benefits which this sort of
Experiment threw up for the researcher was that essentially it got rid of the selection bias?
because the individuals who joined the military here and
Was completely independent of their lifetime income potential
So it was a sort of quasi experiment which came about as a result of the draft process I
don't want to talk about the specifics of this particular bit of research here, and
But I will say that we're going to cover it later on when we talk about instrumental variables estimation
Really here. I just wanted to talk about the as
Social scientists the
Benefit which we can get from appealing or looking for this of natural experiments
and note that the word natural here doesn't literally mean nature it. Just means in the context of
experiment an
Experiment which resulted as a result of some action occurring so it could be human or it could be something from Nature
But it just means that
experimental conditions resulted from something else happening
That concludes today's video and next time we're going to be talking about
Populations and samples and why they're important for econometrics. See you there