Ye Luo

Qiang Chen, Tianyang Han, Jin Li et al.

Can AI effectively perform complex econometric analysis traditionally requiring human expertise? This paper evaluates AI agents' capability to master econometrics, focusing on empirical analysis performance. We develop an ``Econometrics AI Agent'' built on the open-source MetaGPT framework. This agent exhibits outstanding performance in: (1) planning econometric tasks strategically, (2) generating and executing code, (3) employing error-based reflection for improved robustness, and (4) allowing iterative refinement through multi-round conversations. We construct two datasets from academic coursework materials and published research papers to evaluate performance against real-world challenges. Comparative testing shows our domain-specialized AI agent significantly outperforms both benchmark large language models (LLMs) and general-purpose AI agents. This work establishes a testbed for exploring AI's impact on social science research and enables cost-effective integration of domain expertise, making advanced econometric methods accessible to users with minimal coding skills. Furthermore, our AI agent enhances research reproducibility and offers promising pedagogical applications for econometrics teaching.

Jin Li, Ye Luo, Xiaowei Zhang

This paper identifies and addresses dynamic selection problems in online learning algorithms with endogenous data. In a contextual multi-armed bandit model, a novel bias (self-fulfilling bias) arises because the endogeneity of the data influences the choices of decisions, affecting the distribution of future data to be collected and analyzed. We propose an instrumental-variable-based algorithm to correct for the bias. It obtains true parameter values and attains low (logarithmic-like) regret levels. We also prove a central limit theorem for statistical inference. To establish the theoretical properties, we develop a general technique that untangles the interdependence between data and actions.

Jin Li, Ye Luo, Zigan Wang et al.

In the standard data analysis framework, data is collected (once and for all), and then data analysis is carried out. However, with the advancement of digital technology, decision-makers constantly analyze past data and generate new data through their decisions. We model this as a Markov decision process and show that the dynamic interaction between data generation and data analysis leads to a new type of bias -- reinforcement bias -- that exacerbates the endogeneity problem in standard data analysis. We propose a class of instrument variable (IV)-based reinforcement learning (RL) algorithms to correct for the bias and establish their theoretical properties by incorporating them into a stochastic approximation (SA) framework. Our analysis accommodates iterate-dependent Markovian structures and, therefore, can be used to study RL algorithms with policy improvement. We also provide formulas for inference on optimal policies of the IV-RL algorithms. These formulas highlight how intertemporal dependencies of the Markovian environment affect the inference.

Xi Chen, Ye Luo, Martin Spindler

In this paper we develop a data-driven smoothing technique for high-dimensional and non-linear panel data models. We allow for individual specific (non-linear) functions and estimation with econometric or machine learning methods by using weighted observations from other individuals. The weights are determined by a data-driven way and depend on the similarity between the corresponding functions and are measured based on initial estimates. The key feature of such a procedure is that it clusters individuals based on the distance / similarity between them, estimated in a first stage. Our estimation method can be combined with various statistical estimation procedures, in particular modern machine learning methods which are in particular fruitful in the high-dimensional case and with complex, heterogeneous data. The approach can be interpreted as a \textquotedblleft soft-clustering\textquotedblright\ in comparison to traditional\textquotedblleft\ hard clustering\textquotedblright that assigns each individual to exactly one group. We conduct a simulation study which shows that the prediction can be greatly improved by using our estimator. Finally, we analyze a big data set from didichuxing.com, a leading company in transportation industry, to analyze and predict the gap between supply and demand based on a large set of covariates. Our estimator clearly performs much better in out-of-sample prediction compared to existing linear panel data estimators.

Jannis Kueck, Ye Luo, Martin Spindler et al.

Empirical researchers are increasingly faced with rich data sets containing many controls or instrumental variables, making it essential to choose an appropriate approach to variable selection. In this paper, we provide results for valid inference after post- or orthogonal $L_2$-Boosting is used for variable selection. We consider treatment effects after selecting among many control variables and instrumental variable models with potentially many instruments. To achieve this, we establish new results for the rate of convergence of iterated post-$L_2$-Boosting and orthogonal $L_2$-Boosting in a high-dimensional setting similar to Lasso, i.e., under approximate sparsity without assuming the beta-min condition. These results are extended to the 2SLS framework and valid inference is provided for treatment effect analysis. We give extensive simulation results for the proposed methods and compare them with Lasso. In an empirical application, we construct efficient IVs with our proposed methods to estimate the effect of pre-merger overlap of bank branch networks in the US on the post-merger stock returns of the acquirer bank.

Ye Luo, Martin Spindler

In the recent years more and more high-dimensional data sets, where the number of parameters $p$ is high compared to the number of observations $n$ or even larger, are available for applied researchers. Boosting algorithms represent one of the major advances in machine learning and statistics in recent years and are suitable for the analysis of such data sets. While Lasso has been applied very successfully for high-dimensional data sets in Economics, boosting has been underutilized in this field, although it has been proven very powerful in fields like Biostatistics and Pattern Recognition. We attribute this to missing theoretical results for boosting. The goal of this paper is to fill this gap and show that boosting is a competitive method for inference of a treatment effect or instrumental variable (IV) estimation in a high-dimensional setting. First, we present the $L_2$Boosting with componentwise least squares algorithm and variants which are tailored for regression problems which are the workhorse for most Econometric problems. Then we show how $L_2$Boosting can be used for estimation of treatment effects and IV estimation. We highlight the methods and illustrate them with simulations and empirical examples. For further results and technical details we refer to Luo and Spindler (2016, 2017) and to the online supplement of the paper.

Ye Luo, Martin Spindler, Jannis Kück

Boosting is one of the most significant developments in machine learning. This paper studies the rate of convergence of $L_2$Boosting, which is tailored for regression, in a high-dimensional setting. Moreover, we introduce so-called \textquotedblleft post-Boosting\textquotedblright. This is a post-selection estimator which applies ordinary least squares to the variables selected in the first stage by $L_2$Boosting. Another variant is \textquotedblleft Orthogonal Boosting\textquotedblright\ where after each step an orthogonal projection is conducted. We show that both post-$L_2$Boosting and the orthogonal boosting achieve the same rate of convergence as LASSO in a sparse, high-dimensional setting. We show that the rate of convergence of the classical $L_2$Boosting depends on the design matrix described by a sparse eigenvalue constant. To show the latter results, we derive new approximation results for the pure greedy algorithm, based on analyzing the revisiting behavior of $L_2$Boosting. We also introduce feasible rules for early stopping, which can be easily implemented and used in applied work. Our results also allow a direct comparison between LASSO and boosting which has been missing from the literature. Finally, we present simulation studies and applications to illustrate the relevance of our theoretical results and to provide insights into the practical aspects of boosting. In these simulation studies, post-$L_2$Boosting clearly outperforms LASSO.