Inference on Winners*.
Policy makers, firms, and researchers often choose among multiple options based on estimates. Sampling error in the estimates used to guide choice leads to a winner's curse, since we are more likely to select a given option precisely when we overestimate its effectiveness. This winner's curse biases...
| Published in: | Quarterly Journal of Economics Vol. 139; no. 1; pp. 305 - 359 |
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| Main Authors: | , , |
| Format: | Article |
| Published: |
Oxford University Press / USA
Feb2024
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| Subjects: | |
| Online Access: | View this record in EBSCOhost |
| Summary: | Policy makers, firms, and researchers often choose among multiple options based on estimates. Sampling error in the estimates used to guide choice leads to a winner's curse, since we are more likely to select a given option precisely when we overestimate its effectiveness. This winner's curse biases our estimates for selected options upward and can invalidate conventional confidence intervals. This article develops estimators and confidence intervals that eliminate this winner's curse. We illustrate our results by studying selection of job-training programs based on estimated earnings effects and selection of neighborhoods based on estimated economic opportunity. We find that our winner's curse corrections can make an economically significant difference to conclusions but still allow informative inference. |
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