Simple example on using Instrumental Variables method for estimation

%load_ext autoreload
%autoreload 2

import numpy as np
import pandas as pd
import patsy as ps

from statsmodels.sandbox.regression.gmm import IV2SLS
import os, sys
from dowhy import CausalModel

Loading the dataset

We create a fictitious dataset with the goal of estimating the impact of education on future earnings of an individual. The ability of the individual is a confounder and being given an education_voucher is the instrument.

n_points = 1000
education_abilty = 1
education_voucher = 2
income_abilty = 2
income_education = 4


# confounder
ability = np.random.normal(0, 3, size=n_points)

# instrument
voucher = np.random.normal(2, 1, size=n_points)

# treatment
education = np.random.normal(5, 1, size=n_points) + education_abilty * ability +\
            education_voucher * voucher

# outcome
income = np.random.normal(10, 3, size=n_points) +\
         income_abilty * ability + income_education * education

# build dataset (exclude confounder `ability` which we assume to be unobserved)
data = np.stack([education, income, voucher]).T
df = pd.DataFrame(data, columns = ['education', 'income', 'voucher'])

Using DoWhy to estimate the causal effect of education on future income

We follow the four steps: 1) model the problem using causal graph,

2. identify if the causal effect can be estimated from the observed variables,

3. estimate the effect, and

4. check the robustness of the estimate.

#Step 1: Model
model=CausalModel(
        data = df,
        treatment='education',
        outcome='income',
        common_causes=['U'],
        instruments=['voucher']
        )
model.view_model()
from IPython.display import Image, display
display(Image(filename="causal_model.png"))

/__w/dowhy/dowhy/dowhy/causal_model.py:582: UserWarning: 1 variables are assumed unobserved because they are not in the dataset. Configure the logging level to `logging.WARNING` or higher for additional details.
  warnings.warn(

# Step 2: Identify
identified_estimand = model.identify_effect(proceed_when_unidentifiable=True)
print(identified_estimand)

Estimand type: EstimandType.NONPARAMETRIC_ATE

### Estimand : 1
Estimand name: backdoor
No such variable(s) found!

### Estimand : 2
Estimand name: iv
Estimand expression:
 ⎡                                            -1⎤
 ⎢    d              ⎛    d                  ⎞  ⎥
E⎢──────────(income)⋅⎜──────────([education])⎟  ⎥
 ⎣d[voucher]         ⎝d[voucher]             ⎠  ⎦
Estimand assumption 1, As-if-random: If U→→income then ¬(U →→{voucher})
Estimand assumption 2, Exclusion: If we remove {voucher}→{education}, then ¬({voucher}→income)

### Estimand : 3
Estimand name: frontdoor
No such variable(s) found!

# Step 3: Estimate
#Choose the second estimand: using IV
estimate = model.estimate_effect(identified_estimand,
        method_name="iv.instrumental_variable", test_significance=True)

print(estimate)

*** Causal Estimate ***

## Identified estimand
Estimand type: EstimandType.NONPARAMETRIC_ATE

### Estimand : 1
Estimand name: iv
Estimand expression:
 ⎡                                            -1⎤
 ⎢    d              ⎛    d                  ⎞  ⎥
E⎢──────────(income)⋅⎜──────────([education])⎟  ⎥
 ⎣d[voucher]         ⎝d[voucher]             ⎠  ⎦
Estimand assumption 1, As-if-random: If U→→income then ¬(U →→{voucher})
Estimand assumption 2, Exclusion: If we remove {voucher}→{education}, then ¬({voucher}→income)

## Realized estimand
Realized estimand: Wald Estimator
Realized estimand type: EstimandType.NONPARAMETRIC_ATE
Estimand expression:
 ⎡   d            ⎤  -1⎡   d               ⎤
E⎢────────(income)⎥⋅E  ⎢────────(education)⎥
 ⎣dvoucher        ⎦    ⎣dvoucher           ⎦
Estimand assumption 1, As-if-random: If U→→income then ¬(U →→{voucher})
Estimand assumption 2, Exclusion: If we remove {voucher}→{education}, then ¬({voucher}→income)
Estimand assumption 3, treatment_effect_homogeneity: Each unit's treatment ['education'] is affected in the same way by common causes of ['education'] and ['income']
Estimand assumption 4, outcome_effect_homogeneity: Each unit's outcome ['income'] is affected in the same way by common causes of ['education'] and ['income']

Target units: ate

## Estimate
Mean value: 3.8911303682481115
p-value: [0, 0.001]

We have an estimate, indicating that increasing education by one unit increases income by 4 points.

Next we check the robustness of the estimate using a Placebo refutation test. In this test, the treatment is replaced by an independent random variable (while preserving the correlation with the instrument), so that the true causal effect should be zero. We check if our estimator also provides the correct answer of zero.

# Step 4: Refute
ref = model.refute_estimate(identified_estimand, estimate, method_name="placebo_treatment_refuter", placebo_type="permute") # only permute placebo_type works with IV estimate
print(ref)

Refute: Use a Placebo Treatment
Estimated effect:3.8911303682481115
New effect:-0.0016381991489736122
p value:0.9199999999999999

The refutation gives confidence that the estimate is not capturing any noise in the data.

Since this is simulated data, we also know the true causal effect is 4 (see the income_education parameter of the data-generating process above)

Finally, we show the same estimation by another method to verify the result from DoWhy.

income_vec, endog = ps.dmatrices("income ~ education", data=df)
exog = ps.dmatrix("voucher", data=df)

m = IV2SLS(income_vec, endog, exog).fit()
m.summary()

IV2SLS Regression Results

Dep. Variable:	income	R-squared:	0.878
Model:	IV2SLS	Adj. R-squared:	0.878
Method:	Two Stage	F-statistic:	1119.
	Least Squares	Prob (F-statistic):	4.07e-165
Date:	Tue, 30 Jan 2024
Time:	17:49:18
No. Observations:	1000
Df Residuals:	998
Df Model:	1

	coef	std err	t	P>|t|	[0.025	0.975]
Intercept	10.7388	1.055	10.175	0.000	8.668	12.810
education	3.8911	0.116	33.446	0.000	3.663	4.119

Omnibus:	0.242	Durbin-Watson:	1.945
Prob(Omnibus):	0.886	Jarque-Bera (JB):	0.329
Skew:	-0.002	Prob(JB):	0.848
Kurtosis:	2.911	Cond. No.	25.7