Instrumental variables

Regression discontinuity is an incredible hack for finding causality in arbitrary rules.

But what if we are dealing with messy observational data where there is no clean threshold and we know we have unmeasured confounders? This brings us to section six of our deep dive, instrumental variables.

This is the absolute hallmark of econometric methodology covered in chapters twenty-one and twenty-three.

If DAGs and propensity scores are about measuring everything, instrumental variables, or IV, is a strategy for when you accept that you can't measure everything.

It's a completely different paradigm.

At the center of this paradigm is the instrument itself.

IV is a scalpel.

It cuts precisely, but it only cuts a very small area.