Typically, the justification for an instrumental variable will come from:
A) some sound theoretical argument and some empirically testable conditions.
B) empirically testable conditions only.
C) "big data" application data sets.
D) panel data sets.

Question

Quizplus · Accepted Answer

A sound theoretical argument supports the idea behind the use of instrumental variables. Empirically testable conditions help to determine whether the instrumental variable is valid or not. Without a theoretical argument, the instrumental variable may not make sense or may be invalid, and without empirically testable conditions, we cannot verify whether the instrumental variable is exogenous or not. "Big data" application data sets or panel data sets are data sources and do not relate to the justification for the validity of instrumental variables.

Typically, the Justification for an Instrumental Variable Will Come From