Strategies for identifying valid instrumental variables
Finding the right instrumental variables is essential for uncovering and learning about true cause-and-effect relationships, especially when dealing with tricky data that hides those relationships. For an instrumental variable to be up to the task, it must pass three tests: it has to be relevant, meaning it actually influences the treatment; it must be exogenous, not tangled up with other factors that could bias the outcome; and it must adhere to the exclusion restriction, affecting the outcome only through the treatment, not by any backdoor means.
In simple terms, relevance ensures our instrumental variable and the treatment are connected, 
; exogeneity confirms the instrumental variable is not secretly affecting the outcome through unknown paths, 
; and the exclusion restriction guarantees the instrumental variable’s influence is strictly through its effect on the treatment.
Practically, finding such instrumental...
