Econometricians are also sensitive

One of my favorite podcasts is EconTalk.While last weeks edition featured Ed Leamer from UCLA. Most of the podcast was a discussion about Macroeconomics within thescope of Ed's latest book, the host (Russ Roberts) gave Ed an opportunity to discuss econometrics. Ed made a point that any econometric study should include a sensitivity analysis to see verify if the study is robust. If the study is too sensitive then the study should be considered but not seen as absolute.

This compliments an earlier post on sensitivity analysis for Linear Programming. The lesson I am learning is that while each technique of data modeling can guide organizations to the best answer, it is also important to understand under what conditions does the result remain valid. Without understanding the sensitivity of the model and its results, the effort to make a better decision with scientific skills, could be wasted given the skills may not be applied within the proper conditions. Model building for decisions is not complete until a sensitivity analysis and applying it's results has been performed.

Listen to the EconTalk podcast