Analyzing Instrumental Variables

In this chapter, we’ll delve deeper into a new technique called instrumental variables that will significantly enhance our understanding of causal inference. Instrumental variables address the complexities of confounding and endogeneity (this occurs when an explanatory variable in the model is correlated with the error term). Instrumental variables provide precise analyses to reveal causal relationships to discover hidden truths. This chapter is designed to equip you with the skills to identify potential instrumental variables, understand the criteria for an effective instrumental variable, and execute instrumental variable analysis using R. With a combination of theoretical insights, practical R applications, and in-depth explanations, we aim to explain the utility of this methodology in causal science. By the chapter’s conclusion, you’ll possess the expertise to employ instrumental variable analysis confidently, approaching your...