Instrumental Variables

“An external source of variation can isolate part of an exposure, if demanding conditions hold.”

01 / PLAINLY

What it means, plainly

An instrumental variable uses an outside source that changes the chance of receiving an exposure. A causal reading requires strong assumptions about how it relates to the outcome.

02 / CONTEXT

A little more

An instrument must affect exposure, be suitably separated from causes of the outcome, and affect that outcome only through exposure within the framework. Extra assumptions may identify local effects.

03 / WHY IT MATTERS

Why it matters

It may help when exposure and outcome share hard-to-measure causes, but it makes limits explicit that merely predicting treatment cannot solve.

04 / EXAMPLE

A familiar example

An access lottery can instrument receipt of a program even when winning does not guarantee participation.

05 / LIMIT

What it does not mean

Predicting treatment is not enough; the exclusion restriction is often hard to verify directly.

06 / NOTICE

Notice it in your day

For an access lottery, draw lottery → participation → outcome. Then note which direct arrow must be absent under the exclusion restriction.

FINAL NOTE

The idea worth keeping

State every instrument assumption and the population to which the estimate applies.

QUESTIONS / 02

Questions people still have

Is predicting exposure enough for a valid instrument?

No. The other framework assumptions, including exclusion, must also hold.

What does the exclusion restriction require?

Within the assumed framework, the instrument affects the outcome only through the exposure.