Hi, in this last lecture in this module, I wanna talk about something known as the identification problem. And that is basically the question of, how do you tell whether something occurred, you know, whether people hanging out with each other look alike happen because of sorting, because of the [inaudible]. Or because the standing ovation pure effect, right? Or to use the fancy economic [inaudible] terms, is this because of homophony, right? This idea that you want to, you know, be with people who are like you. Or is it because of pure effects? You wanna start acting, you act like people you hang around with. Well in some cases that's easy to figure out, right. So if you look at segregation patterns right, by race, it's very clear that like, this happens because of sorting. Right? It's also [inaudible]. This is a picture of a middle school. This is some data from James Moody. The yellow dots here are Caucasian students, and the green dots are African Americans. And what you see is you see that these, you see these four clusters. Right? Here's cluster one. Two, three, and four. The pink dots are mixed race students, and what you see is that these kids have sort of sorted into groups, based on race. Now you also. Wait. There's also this, this. Break this way right, because there's four groups, what's that? Well this is middle school so that's male, female, right. So basically you have white girls, white boys, black girls, black boys creating four different social groups. And this again, it's ver-, that's just sorting. Now there's other things that aren't sorting. So this is one of my favorite graphs. These are generic names for soft drinks so if you look up in the North East, right. Or if you go out here in the west, people tend to say soda. Right? If you live anywhere here in the great Midwest where I live, people will say pop. Like if I go to the restaurant I'll say oh, I'll have a pop. You know, give me. A Coke, which if you go down into the South, is what they call almost anything, so you can walk into a restaurant and say I'll have a Coke, and they'll say would you like a Dr Pepper, or an orange, or a Coke, so Coke refers to any soft drink so if you look around the United States, there's two soda regions, there's a hop region, and there's a Coke region. Now there's no way this is sorting. There's no way someone sort of grows up in the South, really wants to say pop, and so they move up here to the Midwest in order to live with the pop people. [laugh] That's not gonna happen, right? So this is clearly a peer effect. Now there's two books that recently came out. One is called The Big Sort by Bill Bishop. The other is called Connected. By [inaudible] and James Fowler and both of these books make the case for. One of these effects so the Big Sort talks about sorting, obviously, and Connected talks about peer-effects. And in those two books, you see pictures of things where they sort of argue that sorting is the cause and peer-effects are the cause. Now what's an example of, from the Big Sort. Well, here's political opinion. So you see in 1976, each dark county is colored in where the Democrats won by more than twenty percent. In each grey county, the Republicans won by more than twenty percent and white counties where it was within twenty percent. So Closed counties. This is what 1976 looked like, here's 2004. Now, if you notice, the countries become, much more of the country's been filled in. And the places that aren't filled in are just a few states, like Minnesota, Michigan, Iowa, and, Wisconsin. But other states are almost completely filled in. And the other thing is to recognize here that a lot of the very dark regions which are majority Democratic, are cities. And so, most voters live in non-competitive districts. Bishop argues that this happened because of sorting. The Democrats moved to where the Democrats are, and Republican moved to where Republicans are. So people have sorted. According to their particular beliefs. And you can also make an argument though that this happened because of. Pure effects. That [inaudible], people moved into democratic districts. And are more democrats, so they just became democrats. Well here's some pictures from the book connected, which are used for pure effects. And this has to do with happiness. Now people who are blue here are unhappy and people who are yellow, are happy. So yellow sort of [inaudible]. If you notice you see clusters of yellow people and you see cluster of blue people. So what you've got is you've got. Unhappy people hang out together and happy people hang out together. Now. What [inaudible] follow argued, follower argue is that this is because of peer effects. If you're unhappy, but you start hanging out with happy people then you become happy, right. But one can make the alternative argument that this is because of sorting. Now if you look at smoking you see a similar thing, here's smoking in 2000, now the yellow dots are the people who smoke, and what you see here is that they tend to be out near the fringe of the social network. And you see big clusters of people who don't smoke, so here there's a lot of, you can look at this and think well. Boy this seems to be evidence of, just this snapshot, you could convince yourself that this is evidence of peer effects on smoking. Here's one more [inaudible] sort of problematic. This is the average number of hospice days that someone spends if they're chronically ill. Now, you'd think this should be pretty much the same across the country. Yet you see huge differences. [inaudible] if you look just in the state of Tennessee here, right? There's regions where it's, you know, between six and thirteen days. And then right adjacent to it, right, right there, it's above 23 days. And so what you see is you see these, like, in here, you know, if in Idaho, you also see huge disparities. Now what's going on here is where these lines are. We see these sharp lines. Those are probably different hospitals. So that means that some hospitals are keeping chronicle patients for a long time. And others aren't. So why is that. Well. That could be sorting. It could be [laugh] doctors and nurses who's like to keep people at hospitals for a long time move to one area. It can also be [inaudible]. It could be people sort of do what the other doctors around them do. So when you get things like this right. You see pictures like this. It's an open question. Which one is it. And here's one more, this is Medicare reimbursements. Per enrollee. So how much Medicare money do people get back? And if you look at this, like, you know, I'm from, I put this up ?cause I'm from Michigan. Look at the state of Michigan. [inaudible] some areas where they get a whole bunch back, and other areas where they get very little. And if you look in the state of California, you see massive disparities. Like, these, you have regions where it's less than $7,000, right next to regions where it's more than $17,000. So there's massive variation, how much Medicare reimbursement you get per enrollee. And again, you could ask, is this because of. Sorting the people who like to give a lot of governed money move to an [laugh] area? Or is it because of some sort of peer effect? People give more money because other people give more money. And these are puzzles. Well, let's see why we can't tell, why there's an identification from if we just look at the picture. So, suppose we've got two types of people, we've got a's, and we've got b's, all right? Now, let's look at sorting. So suppose we started out, we have two populations. One population has, you know, two a's, two b's, and then two more a's, so there's four a's and two b's, and the other has four b's and two a's. If sorting went on, what would happen is, these b's would feel unhappy and they would move down here. And these A's would feel unhappy, and they?d move up there. Right? And what we're going to get is all A's and all B's. Now see what peer effects would look like. Peer effects. I've got four A's and two B's. And these B's would switch and become A's. And down here I've got four B's and two A's. And these A's would switch and they'd become B's. So what happens is in either case, I'm gonna get one group of all A's, and one group of all B's. And I can't tell, did this happen because they sorted or did this happen because it was [inaudible]. If I just have a snapshot, if I just take out my little camera here, right, take a little picture, I can't tell. So, how do we do it? Ow do we make sense of it? How can people like founder Chris Staccus argue that, no this is really peer effects, and how can people like Bishop argue, that this was sorting? Welp. So since we've already answered that, we've answered that because let's think about the process. With sorting we start out. Like this, we can actually see these people move. These bees move here. And these A's move here. So what Bishop does in his book, is he gives evidence of people moving in to districts where people are like them politically. So he literally find evidence of these, of Democrats moving into predominantly Democratic districts, and Republicans moving toward Republican districts. The people choose their districts based on the political ideology of other people in their district. So when you look for a house, you don't just care how many bedrooms and bathrooms it has. You care about whether your neighbors are Democrats, or whether your neighbors are Republicans, right? What [inaudible] is trying to do, is they say. Okay, to find evidence of pure effects what we need to show is we need to show that these people, right, switched and became As because most of their friends were As. Now that can be difficult to do, right, in some cases it's easier to do in other cases, but to distinguish between sorting and pure effects we have to have that sort of micro-level data and it's got to be dynamic data. Right so. Bishop has seen people move. [inaudible] See people change their behavior. And this is why identification is so tricky. Right. Is if you just have a snap shot. You can't tell. Now, let's go back to one of the big reasons why you know. Why [inaudible] is important. That is we have many model thinker. Right, You have lots of [inaudible]. Multiple [inaudible] of [inaudible]. You just better understand the world. Well, we learn two models of looking at the same phenomenon. People, you know, you go to some place and the people also can be, [inaudible], you know, looking the same, acting the same, right? And they believe the same things. What we've learned in this module is that there's two possible causes for that. One cause could be, that they've sorted into it. Another cause could be, that there were peer effects. When I just see that phenomenon, I can't tell. There's an identification point. So if I wanna sort out, did this happen because of sorting? Or did this happen because of pure effects, I need dynamic data. I need to sort of have more data over time. So that was another reason we have models, right? To help inform data collection. So if you wanna answer this question, so, suppose you're concerned about health care costs, and you see these, this massive variation in reimbursement per enrollee. Or you care about health care just in general, and you see this massive variation in how much time people get in hospice, [inaudible] what best, well. You want to figure out, why is this happening, what's causing this variation, is it pair effects. Or is it sorting? Well, how do you do that? How do you know? Well, you need better data, you need dynamic data to see, are people moving or are people changing? And then once you know what it is, you can start effecting policies, right, in order to get better outcomes. Alright, thank you.