“But Economics is Not an Experimental Science,” C. Sims (2010)

Christopher Sims, a winner of yesterday’s Nobel, wrote this great little comment in the JEP last year that has been making the blog rounds recently (hat tip to Andrew Gelman and Dan Hirschman). It’s basically a broadside against the “Identification Mafia”/quasinatural experiment type of economics that is particularly prevalent these days in applied micro and development.

The article is short enough that you should read it yourself, but the basic point is that a well-identified causal effect is, in and of itself, insufficient to give policy advice. For instance, if smaller class sizes lead to better outcomes in a quasinatural experiment, we might reasonably wonder why this happens. That is, if I were a principal and I created some small classes and some very large classes – and this is what universities do with the lecture hall/seminar model – am I better off than if I used equal classes all around? A well-estimated structural model can tell you. A simple identified quasinatural experiment cannot. And this problem does not even rely on expectations feedback and other phenomena that make many “experiments” in macro less than plausible.

Two final notes. First, let’s not go overboard: well-identified models and RCTs are good things! But, good internal validity is not an excuse to ignore external validity. Well-identified empirics that, through their structural setup, allow counterfactuals to be discussed and allow comparison with the rest of the literature are quite clearly the future of empirical economics. Second, as Sims notes, computers are very powerful now and growing more so. There is little excuse in the year 2011 for avoid nonlinear/nonparametric structures if we believe them to be at all important.

http://sims.princeton.edu/yftp/AngristPischkeJEP/AngristPischkeComment.pdf (Final working paper – published in Spring JEP commenting on a review of quasinatural experiments by Angrist and Pischke of “Mostly Harmless Economics” fame)

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