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Ceteris Paribus: Public vs. Private University - YouTube
Channel: Marginal Revolution University
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[gong chiming]
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♪ [music] ♪
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[birds chirping]
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- [Sensei] Welcome.
You have traveled long and far,
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through jungles and deserts,
to learn econometrics.
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Today you take your first step
towards becoming a metrics master.
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We will be studying the teachings
of Master Joshway.
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He and Master Stevefu
built this place of learning.
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Our first lesson is not
for training your hands,
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but for training your mind.
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- [Josh] Our metrics path
leads to choices and consequences.
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But the way of metrics
begins with questions.
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We consider questions
of world-shaking importance.
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But some of our most interesting
questions are personal --
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what to study, where to work,
whether to marry your sweetheart.
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Here's a question you might
have considered already.
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Should you go to
an expensive private university,
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like Carnegie Mellon or Duke?
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Or should you save money
by going to your local state school,
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say, Penn State or UNC?
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Facing two roads,
you can pick only one.
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Pondering your direction,
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you naturally consider the outcomes
that lie at the end of each road,
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what skills, connections,
and opportunities await
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in each scenario.
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For one road, the one
that you pick, all is revealed.
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Suppose you pony up
big bucks for private school
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and head for a leafy campus.
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- [Girl] Woo! Go Blue Devils!
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- [Josh] After graduation, alas,
your first job proves disappointing
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and you're also saddled
with a mountain of college debt.
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- [Girl] These bills! I wonder...
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- [Josh] You wish now
that you could have seen
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what lies at the end of your path
down the other road,
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the road that leads to state school
and work and life beyond.
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Unfortunately,
the path not taken is obscure.
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- [Sensei] We call the road
not taken "the counterfactual."
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- [Students] Counterfactual.
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- [Sensei] The counterfactual road
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leads to potential
but unrealized outcomes.
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Only by seeing the counterfactual
can we evaluate our decision
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of private versus public.
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But the counterfactual road
is hidden --
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you can't see
what's at the end of it.
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So, what can we do?
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- [Josh] In what sense
can we imagine counterfactuals?
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Imagine, perhaps,
a cloning machine.
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We send your clone
down the counterfactual road.
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At the end of this fanciful journey
you'll meet your clone
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and compare notes.
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- [Girl] ...really great.
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- [Josh] You then learn
which of your two potential paths
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lead to a more rewarding outcome.
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We imagine that you
and your clone are identical --
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you have the same genes
and life experience
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up to the point
at which your paths diverge.
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This fact makes the comparison
between the two of you
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especially revealing.
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The idea of a perfectly
balanced comparison,
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mystical and mysterious
as it sounds,
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is central to the hard-nosed
quantitative discipline
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of econometrics.
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This idea is so important
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that masters have given it
a latin name: "ceteris paribus."
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- [Sensei] Ceteris paribus.
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- [Students] Ceteris par--,
paribus, what? Ceteris paribus.
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- [Sensei] Ceteris paribus
means "other things equal,"
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all other things.
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With clones, we'd have
perfect ceteris paribus,
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and we'd actually get to play out
the counterfactual scenario.
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We'd have a clear picture
of cause and effect.
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- [Josh] In our fanciful
cloning experiment,
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the only differences between you
and cloned-you arise
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in the wake of a single decision --
to go private, or go public.
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What comes later must therefore
be caused by this single choice.
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Too bad cloning
to discover counterfactuals
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is impractical, maybe even illegal.
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But cloning is also unnecessary.
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Metrics masters
make it their business
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to discover something
seemingly unknowable and obscure --
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what lies at the end
of the road not taken.
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- [Camilla] How is that possible?
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- [Sensei] We don't have
a cloning machine,
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but if you develop the right mindset
you won't need one.
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Wielded with judgement and skill,
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the weapons of econometrics
can provide
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ceteris paribus comparisons.
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Time for your first test
of ceteris paribus.
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Otto, does private university
attendance pay?
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How would you discover this?
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- [Otto] By following
two groups of students,
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one going private
and the other public --
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then we measure their average wages.
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- [Sensei] This has been done.
Here's what it shows.
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Those who attend private school
earn 14% more.
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- [Otto] Then a private university
is worth it.
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- [Sensei] Have you forgotten
about ceteris paribus?
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Look at the group of students
on each road.
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Let's compare them
as they set out for college.
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Are they truly similar?
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Do they have the same test scores,
family background, and ambition?
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Almost certainly not.
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- [Otto] Oh, stupid!
- [Sensei] Surely these differences
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between public and private groups
also affects their wages.
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Can ceteris really be said
to be paribus?
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Fortunately,
this is a training exercise.
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In the high-stakes world
of real empirical work,
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forgetting ceteris paribus
would lead you
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straight into the arms
of one of our mortal enemies --
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selection bias.
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We'll learn how to confront
selection bias next time we meet.
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Rest up. You'll need your strength!
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- [Narrator] You're on your way
to mastering econometrics.
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Make sure this video sticks
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by taking a few
quick practice questions.
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Or, if you're ready,
click for the next video.
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You can also check out
MRU's website
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for more courses,
teacher resources, and more.
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