L3

Question 1

causality

Answer 1

how change in x affect Y
if everything else is equal
casual effect of x on Y = change in Y-counterfactual change Y(would happen anyway)

Question 2

correlation without casual effect because:

Answer 2

spurious correlation (chance)
omitted variable bias (third variable affecting both)
or selection bias
reverse causality (opposite relation)

Question 3

tree ways to identify causal effects

Answer 3

randomized controlled trial (RCT)
Natural experience
Instrumental variables

Question 4

Explain randomized controlled trial

and the two economic games

Answer 4

compare group with treatment to control group

dictator game (give as you want = no reason to give)
Ultimatum game (give and accept = give min amount above 0)

Question 5

external validity

Answer 5

can result in RCT be applicable to outside world?

since people are being monitored that affects their behaviour

Question 6

problem with RCT

Answer 6

Hawthorne effect = change behavior cause they are being studied
John Henry effect = control group try to outperform

ethical issues (no treatment for control group, waste of resource)
Practical issue (expensive, spill over effects, attrition(lose people in experiment))

Question 7

natural experiment

Answer 7

occurs naturally, not created and can be observed

environmental shock, sudden policy change, random administrative error

Question 8

instrumental variables

+ 2 requirements

Answer 8

use an instrument variable that only affects x to see it y changes

• relevance = explain that it impacts x
• exclusion restriction = explain that it doesn’t impact Y