Estimating Instrumental Variables (The Effect, Videos on Causality, Ep 59)

[@abduislam23]

Why adding controls W to the 2SLS?

[@NickHuntingtonKlein]

There are two reasons to add controls in 2SLS: 1. To improve predictive precision and reduce standard errors 2. To support the validity assumption for the instrument. Often, we might think there is an open back door (or front door!) between the instrument and the outcome that does not go through the treatment of interest. In these cases we'd want to close those pathways down by controlling for variables.

[@abduislam23]

@@NickHuntingtonKlein Interesting! For #2, it's kind of ironic that IV, although promoted as a clever way to get around selection on observables, needs the unconfoundedness assumption too, which is in the realm of selection on observables.

[@NickHuntingtonKlein]

@@abduislam23 Yep! The idea is that the IV is *easier* to establish conditional unconfoundedness for than your treatment. i.e. maybe you can observe and measure all the confounders for your IV but not for your treatment. You still need conditional unconfoundedness.