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Using Large Language Models to Discover Instrumental Variables for Causal Inference


Core Concepts
Large language models (LLMs) can be effectively used to accelerate the discovery of potential instrumental variables (IVs) for causal inference in economics and related fields.
Abstract
  • Bibliographic Information: Han, S. (2024). Mining Causality: AI-Assisted Search for Instrumental Variables. arXiv preprint arXiv:2409.14202v2.
  • Research Objective: This paper explores the potential of large language models (LLMs) to assist researchers in identifying valid instrumental variables (IVs) for causal inference, particularly focusing on the challenge of finding variables that satisfy the exclusion restriction.
  • Methodology: The author proposes a multi-step, role-playing prompting strategy for interacting with LLMs. This involves prompting the LLM to simulate the decision-making process of economic agents within specific scenarios, first identifying potential IVs and then refining the selection based on their association with unobserved confounders. The author demonstrates this method using OpenAI's ChatGPT-4 on three classic econometric examples: returns to schooling, supply and demand, and peer effects.
  • Key Findings: The LLM successfully identified a range of potential IVs, including some commonly used in the literature and others that appear novel. The LLM also provided rationales for its selections, demonstrating an ability to reason about the relationships between variables and potential sources of endogeneity.
  • Main Conclusions: The study suggests that LLMs, guided by carefully constructed prompts, can be valuable tools for researchers seeking to identify plausible IVs. This approach can accelerate the discovery process, explore a wider range of potential IVs than typically considered by human researchers, and potentially lead to new insights and research directions.
  • Significance: This research contributes to the growing field of AI-assisted social science research, highlighting the potential of LLMs to enhance human capabilities in causal inference, a fundamental aspect of empirical economics and other social science disciplines.
  • Limitations and Future Research: The author acknowledges that the proposed method does not guarantee the validity of the identified IVs, which ultimately requires careful theoretical and empirical justification. Further research is needed to explore the generalizability of these findings across different LLMs, prompting strategies, and research domains. Additionally, developing methods for evaluating the quality of LLM-generated IVs and integrating them into a robust causal inference workflow are crucial areas for future investigation.
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Quotes
"Exclusion restrictions are fundamentally untestable assumptions." "Considering that narratives are the primary method of supporting IV exclusion, we believe that LLMs, with sophisticated language processing abilities, are well-suited to assist in the search for new valid IVs and justify them rhetorically, just as human researchers have done for decades." "The stark difference, however, is that LLMs can accelerate this process at an exponentially faster rate and explore an extremely large search space, to an extent that human researchers cannot match."

Deeper Inquiries

How can the use of LLMs for IV discovery be integrated with other causal inference techniques, such as regression discontinuity or difference-in-differences?

LLMs can be integrated with other causal inference techniques like regression discontinuity (RD) and difference-in-differences (DiD) in several ways: 1. Identifying Running Variables and Cutoffs in RD: Prompting for Discontinuities: LLMs can be prompted to identify potential running variables exhibiting sharp discontinuities that can be exploited for causal inference. For example, policies often have eligibility criteria based on age, income, or test scores. LLMs can analyze policy texts or related documents to pinpoint these potential discontinuities. Discovering Contextual Cutoffs: Beyond explicit rules, LLMs can help uncover less obvious contextual cutoffs. For instance, in studying the impact of a school program, an LLM might identify a historical event that led to a sudden shift in enrollment patterns, creating a quasi-natural experiment. 2. Enhancing Control Variable Selection in DiD and Regression: Identifying Confounders: LLMs can analyze rich textual data sources (e.g., news articles, policy documents) to identify potential confounding variables that vary over time and might bias DiD estimates. This can help researchers build more robust models by controlling for relevant time trends. Suggesting Interaction Terms: LLMs can suggest meaningful interaction terms between treatment variables and time-varying factors, improving the precision and validity of DiD estimates. 3. Generating Counterfactuals and Placebo Tests: Constructing Counterfactual Scenarios: LLMs can assist in constructing plausible counterfactual scenarios for both RD and DiD. This can involve generating hypothetical policy changes or simulating alternative treatment assignment mechanisms. Facilitating Placebo Tests: LLMs can help design placebo tests by identifying control groups or time periods where the treatment effect should be absent. This strengthens the internal validity of causal claims. Example: In a DiD study of a job training program, an LLM could analyze local news archives to identify industry-specific economic shocks that coincided with the program's implementation. This information could then be used to construct a more accurate control group or to include relevant time-varying covariates in the DiD model. Overall, integrating LLMs with RD, DiD, and other causal inference techniques can lead to: More Comprehensive Identification Strategies: LLMs can help researchers consider a wider range of potential running variables, cutoffs, and control variables. Improved Model Specification: LLMs can enhance the specification of causal models by identifying relevant confounders and suggesting meaningful interaction terms. Stronger Causal Claims: LLMs can facilitate the use of counterfactual analysis and placebo tests, strengthening the internal validity of causal inferences.

Could the reliance on LLMs for IV discovery lead researchers to overlook important contextual factors or domain-specific knowledge that might invalidate the identified IVs?

Yes, over-reliance on LLMs for IV discovery without careful human oversight could lead to overlooking crucial contextual factors or domain-specific knowledge, potentially invalidating the identified IVs. Here's why: LLMs Lack Real-World Context: While LLMs can process vast amounts of text data, they lack the nuanced understanding of real-world contexts and causal mechanisms that human researchers possess. They might suggest IVs that seem plausible in theory but are irrelevant or even misleading in the specific research setting. Domain Expertise is Crucial: Many economic phenomena are deeply intertwined with historical, social, and institutional factors. LLMs, without sufficient domain-specific training data, might not grasp these nuances, leading to the identification of IVs that violate the exclusion restriction due to unobserved confounders. Bias in Training Data: LLMs are trained on massive datasets, which can contain biases and inaccuracies. If these biases are not carefully addressed, they can propagate into the IV discovery process, leading to biased or misleading results. To mitigate these risks, researchers should: Maintain a Critical Perspective: Treat LLM-generated suggestions as starting points for further investigation, not definitive answers. Critically evaluate the proposed IVs using domain expertise and contextual understanding. Incorporate Domain-Specific Knowledge: Provide LLMs with relevant background information, historical context, and theoretical frameworks specific to the research question. This can be achieved through carefully crafted prompts and system messages. Validate with External Evidence: Don't solely rely on LLM outputs. Cross-validate the identified IVs with existing literature, empirical evidence, and expert knowledge to ensure their validity. Transparency and Robustness Checks: Clearly document the use of LLMs in the research process, including the prompts used and any limitations encountered. Conduct sensitivity analyses and robustness checks to assess the impact of potential biases. In essence, LLMs should be viewed as powerful tools that can augment, not replace, human judgment and domain expertise in causal inference. A collaborative approach, combining the strengths of both humans and AI, is crucial for ensuring the validity and reliability of causal findings.

What are the ethical implications of using LLMs in economic research, particularly concerning the potential for bias in LLM-generated outputs and the need for transparency and accountability in the research process?

The use of LLMs in economic research presents several ethical implications, particularly regarding bias, transparency, and accountability: 1. Bias in LLM Outputs: Data Bias: LLMs are trained on massive datasets that can reflect and amplify existing societal biases. If these biases are not carefully addressed, LLM-generated outputs, including potential IVs, can perpetuate and even exacerbate these biases in economic research and policy recommendations. Lack of Explainability: The "black box" nature of some LLMs makes it challenging to understand the reasoning behind their suggestions. This lack of transparency can make it difficult to identify and mitigate potential biases in the IV discovery process. 2. Transparency and Accountability: Reproducibility: The stochastic nature of LLMs can make it difficult to reproduce research findings. Researchers must be transparent about the specific LLM used, the prompts provided, and any fine-tuning procedures employed to ensure the replicability of their results. Over-Reliance and Deskilling: Over-reliance on LLMs without a deep understanding of their limitations could lead to a decline in researchers' critical thinking skills and domain expertise. It's crucial to maintain a balance between leveraging AI tools and developing human capabilities. Misinterpretation and Misuse: LLM-generated outputs can be easily misinterpreted or misused, especially by those without sufficient statistical and causal inference expertise. This highlights the need for clear communication of research findings and responsible use of LLM-based tools. Addressing Ethical Concerns: Bias Mitigation: Researchers should actively engage in bias mitigation strategies, including using diverse training data, developing fairness-aware algorithms, and critically evaluating LLM outputs for potential biases. Explainable AI: Promote the development and use of more transparent and interpretable LLMs, allowing researchers to understand the reasoning behind their suggestions and identify potential biases. Transparency and Documentation: Clearly document the use of LLMs in the research process, including the data sources, training procedures, prompts used, and any limitations encountered. Human Oversight and Collaboration: Emphasize the importance of human oversight and collaboration in all stages of the research process. LLMs should be seen as tools that augment, not replace, human judgment and expertise. Ethical Guidelines and Review: Develop and implement ethical guidelines for the use of LLMs in economic research, including data privacy, bias mitigation, and transparency. Encourage ethical review boards to consider the implications of LLM use in research proposals. By proactively addressing these ethical implications, the research community can harness the power of LLMs while ensuring that economic research remains unbiased, transparent, and accountable.
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