More on Outcome Tests

Today we have updated the paper On the Use of Outcome Tests for Detecting Bias in Decision Making, joint with Magne Mogstad and Jack Mountjoy. Relative to our first version, the paper now has a new framing, a much broader scope, more extensive connections to multiple strands of the literature on discrimination and outcome tests, and more constructive guidance for researchers interested in deriving and conducting outcome tests across a range of institutional settings and data environments. Our results call into question recent conclusions about racial bias among bail judges, and, more broadly, yield four lessons for researchers considering the use of outcome tests of bias. First, the so-called generalized Roy model, which is a workhorse of applied economics, does not deliver a logically valid outcome test without further restrictions, since it does not require an unbiased decision maker to equalize marginal outcomes across groups. Second, the more restrictive “extended” Roy model, which isolates potential outcomes as the sole admissible source of analyst-unobserved variation driving decisions, delivers both a logically valid and econometrically viable outcome test. Third, this extended Roy model places strong restrictions on behavior and the data generating process, so detailed institutional knowledge is essential for justifying such restrictions. Finally, because the extended Roy model imposes restrictions beyond those required to identify marginal outcomes across groups, it has testable implications that may help assess its suitability across empirical settings.