Ceteris Paribus: Public vs. Private University

Ceteris Paribus: Public vs. Private University

October 24, 2019 33 By Stanley Isaacs


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