A Simple Way to Teach Regression

 A Simple Way to Teach Regression

Vanderbilt Owen Graduate School of Management Research Paper

15 Pages Posted: 10 Jan 2020 Last revised: 5 Aug 2021

Luke M. Froeb

Vanderbilt University - Owen Graduate School of Management

Date Written: August 05, 2021

Abstract

This paper introduces a simple free web app that can teach regression to anyone who can point and click. Originally designed to teach Justice Department attorneys enough about regression so that they could cross examine rival experts, the app ``inverts'' the usual pedagogy: instead of showing users how to run regressions on data, it asks them to click on a graph to ``create'' data to achieve a given outcome, like a statistically significant line. Successful completion of each task is rewarded with immediate feedback that reveals the principle behind the exercise. This paper describes short, intuitive exercises to teach: (i) hypothesis testing, statistical significance and confidence intervals, (ii) the difference between correlation and causality, and (iii) how to diagnose functional form mis-specification. These exercises can be completed in just a few minutes.

Keywords: Teaching Regression; statistical significance; correlation vs. causality

JEL Classification: A2 (Economic Education)

Suggested Citation:

Froeb, Luke M., A Simple App to Teach Regression (December 30, 2020). Vanderbilt Owen Graduate School of Management Research Paper, Available at SSRN: https://ssrn.com/abstract=3507142 or http://dx.doi.org/10.2139/ssrn.3507142

Why do 25% of people get so easily duped?

MarginalRevolution.com has the answer:  because they don't "look ahead and reason back," one of the maxims from our textbook.  In the simple game below, solved by backward induction (look ahead to the last move by the third player to see what the second and then the first player should do), 75% of fifth graders learned to look two steps ahead (as the first player) to correctly anticipate what the second and third players would do:

Player 3 is simply asked to match a shape. 

Player 2 earns the most by choosing the color chosen by Player 3. Of course, Player 2 doesn’t know what color Player 3 will choose and so has to reason about Player 3’s actions.

Player 1 earns the most by choosing the same letter as Player 2 but now must reason about Player 2 which involves reasoning about how Player 2 will reason about Player 3. 

Interestingly, women and those interested in STEM do better.  

What my daughter is learning in Rome

We have blogged about the labor market problems in Italy before:

This is why Southern Europe is a mess
Look ahead and reason back:  Italy
If you can measure absenteeism, you can control it

But I never realized how bad it was until I received this e mail from my daughter who is studying in Rome this summer:

Today, in my global practicum class we had a speaker who owns several McDonald's franchises in Rome and he enlightened us on the troubles of being an employer in Italy
 
First of all, he said, all employees who are hired, are hired for life.
They are allotted 6 weeks of paid vacation per year-- even working at Mcdonald's!!!
 
Each employer must pay a 100 percent tax of what he pays to the employee to the government.
 
Each employee has a 6 month paid sick leave per year that they can take with a valid doctors note. (which many tend to pull off with ease)
 
Employees are not allowed to be fired for poor behavior or work ethic, only if they steal or destroy company property.
If the employee is fired and sues the employer, the case is taken to civil court.  Most of these cases can take up to 3 years to be processed, 90% of the time the judge rules in favor of the employee and then the employer must pay 15 months salary for firing them, pay the salary they would have earned during the three years it took the case to be processed, and then must rehire the employee.

So basically no one wants to own or start a business in Italy, but everyone wants a freaking job.

Feel free to forward this to father, I am sure he would be interested, and I thought America was corrupt.

Her semester abroad seems like money well spent. 

Game theory: play the trust game online (Repeated free riding dilemma)

 Pretty good teaching implementation of a repeated prisoners' dilemma.  Very close to co-author Mike Shor's implementation of the same game.  

Professors:  Mike teaches one of the most innovative game theory classes, and has designed a good set of interactive apps.

Clorox is outbidding Vanderbilt for ad space

Following up on an earlier post showing Facebook, Instagram, Google, and Twitter show 20% fewer STEM ads to women than men:  as  Scientific America explains

Women are pricier to reach because they generally make more household purchasing decisions than men do. ...

...on Instagram it cost $1.74 to get a woman’s eyeballs on the ad but only 95 cents to get a man’s.

In other words, Clorox is outbidding Vanderbilt for ad space likely to be seen by women because Clorox places a higher value on the ad.  However, auctions are efficient, so both men and women end up seeing the highest-value ads.  

 OK, so there is no "disparate treatment" of men and women, but isn't it illegal to adopt practices that have a "disparate impact?" My understanding (I am NOT an attorney) is that Federal law prohibits both "disparate treatment" and "disparate impact" discrimination, even though adhering to one would violate the other. 

 For example, if you give a bidding advantage to STEM educational institutions when they bid for ad space likely to be seen by women, the algorithm is treating women differently than men.  This kind of disparate treatment is what the article recommends.

The same kind of tradeoff shows up in the current debate about equality (equal treatment) and equity (equal outcomes). If we want equity, we have to give up on equality.  

Price Changes by Product

Mark Perry has updated and discusses an important graphic. Follow the link to get further insights but I want to focus specifically on the prices for college textbooks below. It is the only one in which the trend has changed. Why?

There are more open source materials available, but I doubt they are widely used. I conjecture that this is due to reduced piracy. It is so easy to scan and post online a PDF version of a textbook that publishers had expected a >50% drop in sales in each successive year of a new edition. (This had also caused a reduction in the time between editions.)

However, a few years ago, textbook publishers adopted a new strategy of pushing online textbooks that came bundled with lots of other online material (my favorite textbook included). Among the online material were assignments, quizzes, and test materials whose scores can be embedded directly into an instructor's Learning Management System (LMS) like Canvas or Blackboard. This meant students needed to subscribe to the online material to complete these assignments needed for their courses. I suspect this caused the amount of piracy to plummet and this negated both the constant need for publishers to stamp out piracy and the rationale for constant price increases. These are testable implications with the right data.

Are market innovations at work with other pirated information goods? Subscribers to music streaming platforms like Spotify and Pandora that bundle huge libraries of songs have little need to search for a pirated song. In this case, each service has access to practically the entirety of recorded music. Video is different. Much of the content on Netflix is not available on Apple+ or Peacock. Each service is a bundle of non-overlapping content. Unless one subscribes to them all, there is still an incentive to pirate a highly-desired, but unavailable, movie.

NIMBY zoning is hurting our kids

Housing prices now consume 40% of the income of new home buyers. Baby Boomers paid only 30%. The difference is NIMBY zoning. Plus density is green. Fabulous essay by Ken Glaeser:

Americans who settle in leafy, low-density suburbs will leave a significantly deeper carbon footprint, it turns out, than Americans who live cheek by jowl in urban towers. And a second paradox follows from the first. When environmentalists resist new construction in their dense but environmentally friendly cities, they inadvertently ensure that it will take place somewhere else—somewhere with higher carbon emissions. Much local environmentalism, in short, is bad for the environment.

...

Thoreau was wrong. Living in the country is not the right way to care for the Earth. The best thing that we can do for the planet is build more skyscrapers.

Link to Chapter 8: restrictions on housing supply (zoning) prevent supply from expanding and raise price.

Compensating differentials for government jobs

In India, government jobs pay 81% less than equivalent jobs in the private sector because of their amenities, like "lifetime tenure, access to bribes and prestige."

HT:  MarginalRevolution.com

Can money buy happiness?

 

I am not sure this is how I would characterize my work, but ...

Why the US is so friendly to monopolies

What they're saying: "Numerous hard-wired differences between the European and American enforcement regimes make it very difficult for U.S. antitrust enforcement agencies to emulate their EU counterparts," wrote antitrust experts Gregory Werden and Luke Froeb in an article in 2019. 

In 10 different areas, they found it much easier to crack down on large monopolies in Europe than in the U.S.

The big picture: European antitrust measures are decided by politicians; in the U.S. it's up to judges.