Wednesday, May 5, 2010

Economist's Notebook: Esther Duflo and Randomized Trials

Here is a video of this year's winner of the John Bates Clark medal in economics (given to the most influential economist under the age of 40), Esther Duflo, promoting the core of her work: using randomized trials to understand the effectiveness of policy interventions in developing countries.

I have talked about this in the past - while I think that randomized trials are great, they have many limitations.  One criticism I have of Duflo is that she is very dismissive of other methods of empirical analyses and much too quick to compare her trials to drug trials.   The biggest problem with randomized trials as practiced by Duflo and others is their lack of generalizability and the fact that they are not true laboratory experiments.  To use an example from the video, just because a few villages in India respond to a particular incentive (some extra lentils) doesn't mean that the same will be true all over the world, or to the same degree.  Also, in drugs trials they have a placebo to account for the fact that people understand that they are being tested and might behave differently because if it, not so in these economics experiments.  Finally, the biological mechanisms within the human body are pretty similar all over the world, but the market, social and cultural structures humans inhabit are different everywhere, so while drugs trials are pretty general, these experiments are not.  I am not sure why Duflo feels the need to be so dismissive of other approaches, but I think it is not very helpful - there is still a lot to be learned from natural experiments and ex-post data analyses when done carefully.  In all of these things, the social scientist must, above all else, remain humble and understand the limitations of all approaches.

Despite all of my complaints, her work is very important and very interesting.  The video is only about 16 minutes long and is pretty engaging.  Enjoy.

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