Economics, History, and Causation
Business History Review Vol. 85, Issue 1, 2011
Posted: 26 May 2013 Last revised: 4 Jun 2013
Date Written: April 17, 2010
Economics and history both strive to understand causation: economics by 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: each successful use of an instrument creates an additional latent variable problem for all other uses of that instrument. 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.
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