Econometrics

For
Consultants
Data, everywhere
Instructor: Tirthatanmoy Das

Lecture 1
Jun 7, 2024
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 But data needs to be
Data, everywhere analyzed…

On its own, data don’t say

much

They have to be processed

for meaningful
interpretation
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 Today…
Data, everywhere
Marketing campaign and
consumer spending

What is Econometrics?

Why econometrics?

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 Let’s take an example:

Impact of Income and Marketing

Campaigns on Consumer Spending

Refer to the webpage used in class

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But how do you know these factors
matter?

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 The invisible data
Key components
▷ Domain knowledge or
theory

▷ Common sense

▷ Observation of real-world
phenomenon

▷ Data analytics tools 6

 Econometrics
Combines all three
with data and Combines all three with
analytics tools

▷ Data

▷Data analytics tools

Isolates causality
from correlation
▷ Often brings causal
interpretation to numbers
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 Econometrics
Literally, economic
measurement ▷ Essentially, deals with
relationships b/w variables

▷ Quantifies these
relationships

▷ This course, actual

business and other data
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 Today…
Data, everywhere
Marketing campaign and
consumer spending

What is Econometrics?

Why econometrics?

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What is Econometrics?

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 Quantifying relationships

Domain concept ▷ Domain concepts driving

data analyses

Data collection
▷ Estimation using data

Estimation ▷ Quantifying the

relationships for prediction
and decision
Decision 11
 Quantifying relationships

▷ Two variable (𝑋 and 𝑌)

Build model for
estimation/prediction
▷ 𝑋: determinant; 𝑌: outcome
Collect data on 2 or
more variables ▷ Does change in 𝑋 affect
𝑌? If so, then by how much?
Estimation and decision
▷ Based on the estimates and
𝑋, predict 𝑌; make decisions
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 Some basic requirements

▷ Domain concepts,
Build model for business intuition
estimation/prediction

▷ Some basic math/stat

Collect data on 2 or
more variables
▷ Data

Estimation and decision

▷ Econometric/statistical
software 13
Why econometrics? - won’t knowing
ML and statistics suffice?

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 Machine learning (ML)

▷ Is good at finding
patterns in data

▷ Uses these patterns for

A data driven classification and
exercise prediction

▷ Needs lots of data

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 Statistics
Focuses on ▷ Works well with smaller
efficient use of samples
data
▷ But sampling variance is
the major concern

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 Econometrics
Includes aspects of
ML and statistics ▷ Is interested in patterns
for predictions

▷ Makes credible
inferences from smaller
samples

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 Econometrics
Additional ▷ Uses domain concepts to
advantages guide data analysis

▷ Mostly, focuses on causal

relationship

▷ Remember? correlation is
not causation
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 Econometrics
Moreover… ▷ It works reasonably well
with smaller datasets

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