Tuesday, December 2, 2014

A Cookbook Econometrics Analogy

Previously I wrote a post on applied econometrics, which really was not all that original. It was motivated by a previous post made by Marc Bellemare and Dave Giles, and I just added some commentary on my personal experience as well as some quotes from Peter Kennedy's A Guide to Econometrics.

Since then, I've been reading Kennedy's chapter on applied econometrics in greater detail (I have a 6th edition copy) and I found the following interesting analogy. Typically cookbook analogies relate negatively to practitioners mind numbingly running regressions and applying tests etc. without strong appreciation for the underlying theory, but this is of a different flavor and to me gives a good impression of what 'doing econometrics' actually feels like:

From The Valavanis (1959, p.83) in Kennedy 6th Edition:

"Econometric theory is like an exquisitely balanced French recipe, spelling out precisely with how many turns to mix the sauce, how many carats of spice to add, and for how many milliseconds to bake the mixture at exactly 474 degrees of temperature. But when the statistical cook turns to raw materials, he finds that hearts of cactus fruit are unavailable, so he substitutes chunks of cantaloupe; where the recipe calls for vermicelli he used shredded wheat; and he substitutes green garment die for curry, ping-pong balls for turtles eggs, and for Chalifougnac vintage 1883, a can of turpentine."

It really gets uncomfortable when you are presenting at a seminar or conference or other audeince and someone that isn't elbow deep in the data challenges points out that your estimator isn't valid theoretically because you used 'turpentine' when the recipe (or econometric theory) calls for  Chalifougnac vintage 1883 or someone well-versed in theory but unaware of the social norms of applied econometrics tries to make you look incompetent by pointing out this 'mistake.'

Also gives me  That Modeling Feeling.

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