Experiments in social sciences

18 Jan, 2020 at 22:30 | Posted in Statistics & Econometrics | 1 Comment

du2How, then, can social scientists best make inferences about causal effects? One option is true experimentation … Random assignment ensures that any differences in outcomes between the groups are due either to chance error or to the causal effect … If the experiment were to be repeated over and over, the groups would not differ, on average, in the values of potential confounders. Thus, the average of the average difference of group outcomes, across these many experiments, would equal the true difference in outcomes … The key point is that randomization is powerful because it obviates confounding …

Thad Dunning’s book is a very useful guide for social scientists interested in research methodology in general and natural experiments in specific. Dunning argues that since random or as-if random assignment in natural experiments obviates the need for controlling potential confounders, this kind of “simple and transparent” design-based research method is preferable to more traditional multivariate regression analysis where the controlling only comes in ex post via statistical modelling.

But — there is always a but …

The point of making a randomized experiment is often said to be that it ‘ensures’ that any correlation between a supposed cause and effect indicates a causal relation. This is believed to hold since randomization (allegedly) ensures that a supposed causal variable does not correlate with other variables that may influence the effect.

The problem with that simplistic view on randomization is that the claims made are exaggerated and sometimes even false.

Since most real-world experiments and trials build on performing a finite amount of randomization, what would happen if you kept on randomizing forever, does not help you to ‘ensure’ or ‘guarantee’ that you do not make false causal conclusions in the one particular randomized experiment you actually do perform. It is indeed difficult to see why thinking about what you know you will never do, would make you happy about what you actually do.

In econometrics one often gets the feeling that many of its practitioners think of it as a kind of automatic inferential machine: input data and out comes causal knowledge. This is like pulling a rabbit from a hat. Great — but first you have to put the rabbit in the hat. And this is where assumptions come into the picture.

The assumption of imaginary ‘super populations’ is one of the many dubious assumptions used in modern econometrics.

As social scientists — and economists — we have to confront the all-important question of how to handle uncertainty and randomness. Should we define randomness with probability? If we do, we have to accept that to speak of randomness we also have to presuppose the existence of nomological probability machines, since probabilities cannot be spoken of — and actually, to be strict, do not at all exist — without specifying such system-contexts. Accepting a domain of probability theory and sample space of infinite populations also implies that judgments are made on the basis of observations that are actually never made!

Infinitely repeated trials or samplings never take place in the real world. So that cannot be a sound inductive basis for science with aspirations of explaining real-world socio-economic processes, structures or events. It’s not tenable. Why should we as social scientists — and not as pure mathematicians working with formal-axiomatic systems without the urge to confront our models with real target systems — unquestioningly accept models based on concepts like the ‘infinite super populations’ used in e.g. the ‘potential outcome’ framework that has become so popular lately in social sciences?

One could, of course, treat observational or experimental data as random samples from real populations. I have no problem with that (although it has to be noted that most ‘natural experiments’ are not based on random sampling from some underlying population — which, of course, means that the effect-estimators, strictly seen, only are unbiased for the specific groups studied). But probabilistic econometrics does not content itself with that kind of populations. Instead, it creates imaginary populations of ‘parallel universes’ and assume that our data are random samples from that kind of  ‘infinite super populations.’

In social sciences — including economics — it’s always wise to ponder C. S. Peirce’s remark that universes are not as common as peanuts …

1 Comment

  1. “we have to confront the all-important question of how to handle uncertainty and randomness.”
    .
    In financial markets, one way to deal with randomness is volatility. Traders buy and sell volatility indices. Theoretically if you are long the S&P 500 you can buy insurance against a crash by longing volatility too. Because of the way they calculate volatility, it goes up when stocks go down.
    .
    Economists should study, and write about, real-world practical methods of handling uncertainty. Financiers are putting prices on uncertainty and making money at it. I believe it is possible for all counterparties to hedge bets, and all make money simultaneously on bets. (Speculation of course occurs but is not necessary.) Thus markets allow money to emerge. All counterparties can book profits (and the Fed stands ready to supply reserves on demand from an infinite supply, as a backstop).


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