Empirical Tools (ch 3) The fundamental issue faced by those doing empirical work in economics is disentangling causality from

correlation.

A. Randomized Trials (Measuring Causation with Data Wed Like to Have) A randomized trial is the ____________ type of experiment for testing causality. A group of individuals is randomly divided into two groups: 1. ______________________________ who receives the treatment of interest 2. ______________________________ which does not Bias refers to any source of difference between the groups that is _________________________ with the treatment but is not due to the treatment. The reason that randomized trials are the gold standard for empirically testing causal effects is___________________________________________________.

Problems:

B. Observational Data (Estimating Causation with Data We Actually Get) Observational data refers to data that is generated by _____________________________ observed in the ___________________________, not in the context of a designed experiment. 1. Time Series Analysis documents the _____________________________ between the variables of interest over time. Problems:

Time Series analysis is useful if there are ____________________________ in the time series that are not related to other factors that can cause _________.

2. Cross-Sectional Regression Analysis is a method for assessing the ________________________ between two variables while holding other factors ________________________. - a cross section means comparing many observations at __________________________ rather than outcomes ___________________________. Regression analysis describes the relationship between the variable you would like to explain (the __________________ variable) and the set of variables that you think might do the explaining (the __________________ variables).

A regression line measures the best __________________________ to the relationship between any two variables. Problems:

Control variables are included in regressions to account for ________________________ between treatment and control groups that can lead to __________. Problems:

3. Quasi-Experiments (aka Natural Experiments) are changes in the ____________________________ that create nearly identical treatment and control groups. A difference-in-difference estimator is calculated by taking the difference between the ____________ in outcomes for the treatment group and control group. These estimators try to combine ________________________ and _______________________ in order to address the problems with each. Problems:

4. Structural Modeling uses estimates of the features that ____________ individual decisions. Randomized and quasi-experiments only provide reduced form estimates. These are measures of the ______________________________ of an independent variable on a dependent variable, without decomposing the ___________________ of the behavior response. Problems: