Economics, History, and Causation
17 Pages Posted: 4 Jan 2011
Date Written: December 20, 2010
Economics and history both strive to understand causation: economics using instrumental variables econometrics and history by weighing the plausibility of alternative narratives. Instrumental variables can lose value with repeated use because of an econometric tragedy of the commons bias: each successful use of an instrument potentially creates an additional latent variable bias problem for all other uses of that instrument – past and future. Economists should therefore consider historians’ approach to inferring causality from detailed context, the plausibility of alternative narratives, external consistency, and recognition that free will makes human decisions intrinsically exogenous.
Keywords: cuausality inference, difference in difference, treatment effect, instrumental variables, tragedy of the commons, latent, variable, bias, scientific method
JEL Classification: C01, C21, C31, G0, M2, N0
Suggested Citation: Suggested Citation