Causal inference · Module 1: Where the idea came from

Arrows and instruments

What is an instrumental variable?

1.5 · 3 min 42 s · published

An instrument is an outside push that moves the treatment but has no other route to the outcome. In 1928 Philip Wright used growing conditions, which change how much flaxseed reaches the market without changing what buyers want, to trace the demand curve. An instrument fails when the push also reaches the outcome by a back route.

Key points

  • Sewall Wright drew causes as path diagrams in 1921: a box for each influence and an arrow for each effect.
  • Wright’s answer to his critics: the diagrams were assumptions, stated openly so others could check them.
  • A good instrument must move the treatment and have no other route to the outcome.
  • A wet spring is a poor instrument for sowing date, because it also affects yield directly.

Chapters

  1. 0:00 Recap: blocks and chance
  2. 0:19 Sewall Wright draws it
  3. 0:58 Assumptions, in the open
  4. 1:25 Philip Wright and flaxseed
  5. 2:24 Spotting the back route

Key terms

Causal map (DAG)
A diagram that draws each thing that varies as a box and each direct effect as an arrow, with no numbers. Also called a directed acyclic graph: arrows point one way and no route returns to its start. Sewall Wright’s path diagrams of 1921 were the first. A map puts assumptions where experts can check them.
Instrument
Something that pushes the treatment around but has no other route to the outcome, like growing conditions shifting the supply of flaxseed in Philip Wright’s 1928 study, or a cow’s genes for milk yield. An instrument lets you measure an effect from outside, but it fails if it leaks through a back route.

Transcript

Last time's quick check: blocking handles the differences you know about; randomisation handles the ones you don't. Today, a father and son who each found a new way to think about causes. In 1915 a young geneticist, Sewall Wright, joined the US Department of Agriculture to study inbreeding in guinea pigs.

He wanted to know how much of an animal's coat pattern came from its parents, how much from its surroundings, and how much from chance in development. So he drew it. A box for each influence, an arrow for each effect, and a number on each arrow that could be worked out from the data. He called them path diagrams, and in 1921 he published a paper with a title that still sounds modern: Correlation and Causation.

The statistics establishment was unimpressed. A critic argued that correlation could never reveal causation, so Wright's diagrams were assumptions dressed up as results. Wright's reply was that they were assumptions, stated openly so others could check them. That is exactly what a causal map is for.

The idea went quiet for decades, then came back, as you'll see in Module 2. Sewall's father, Philip Wright, was an economist with a different puzzle. In 1928 he was studying tariffs on butter, flaxseed and other oils. How much less flaxseed would people buy if its price went up?

The obvious move is to plot price against quantity sold, year by year. But each point is where supply met demand that year, and both were shifting. The cloud of points traces neither curve. Wright's solution: find something that pushes supply around but has nothing to do with demand. Growing conditions, such as the yield per acre of flaxseed, change how much reaches the market without changing how much buyers want.

Follow how price and quantity move when that outside push moves, and you can trace the demand curve. That outside push is called an instrument. It must move the treatment, and it must have no other route to the outcome. Instruments turn up wherever something outside the farmer's choice nudges a decision. But the second condition is where they fail.

Suppose you want the effect of sowing date on yield, and you use a wet spring, which delays sowing, as your instrument. A wet spring also affects yield directly, through waterlogging and disease. That's a back route, and the instrument is useless. So the family business left us two ideas: draw causes as arrows, and measure a cause from outside. Both came from farming questions, animal breeding and the market for farm produce, and both sit at the heart of causal inference today. Next: the most famous causal argument of the twentieth century, about cigarettes, and the question that settled it.

Questions

Why can’t you read a demand curve from prices and quantities?

Each year’s price and quantity is where supply met demand, and both curves were shifting, so the cloud of points traces neither. Philip Wright’s answer was to follow how price and quantity moved when something pushed supply alone, such as growing conditions for flaxseed. That reveals the demand curve.

What is a path diagram?

Sewall Wright’s way of drawing causes, published in 1921 in a paper called Correlation and Causation. Each influence is a box and each effect an arrow, with a number on each arrow that can be worked out from data. It is the ancestor of the causal maps used throughout this series.

Sources

  1. Wright, S. (1920). The relative importance of heredity and environment in determining the piebald pattern of guinea-pigs. Proceedings of the National Academy of Sciences, 6(6), 320–332. doi:10.1073/pnas.6.6.320
  2. Wright, S. (1921). Correlation and causation. Journal of Agricultural Research, 20(7), 557–585. archive.org/details/sim_journal-of-agricultural-research_1921-01-03_20_7
  3. Niles, H.E. (1922). Correlation, causation and Wright's theory of 'path coefficients'. Genetics, 7(3), 258–273. doi:10.1093/genetics/7.3.258
  4. Wright, S. (1923). The theory of path coefficients: a reply to Niles's criticism. Genetics, 8(3), 239–255. doi:10.1093/genetics/8.3.239
  5. Stock, J.H. and Trebbi, F. (2003). Retrospectives: who invented instrumental variable regression? Journal of Economic Perspectives, 17(3), 177–194. doi:10.1257/089533003769204416

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