- Defining trust
- Is trust an economic concept?
Endogeneity, causality, and instrumental variables
- Take the following linear model: \(y=\alpha+\beta x + u\)
- What is x and u are correlated? Beta is biased
- The 2SLS (two-stage-least-square) method:
- Write the structural model: \(y_1=\beta_1 y_2 + \beta_2 x_1+u\) where \(y_2\) is endogenous and \(x_1\)is exogenous
- First LS: \(y_2=\gamma_1 z_1+\gamma_2 z_2+e\)
- Calculate \(\hat{y_2}\)
- Second LS: \(y_1=\beta_1 \hat{y}_2 + \beta_2 x_1+u\)