Economics, History, and Causation
Economics and history both strive to understand causation: economics using instrumental variables econometrics and history by weighing the plausibility of alternative narratives. Instrumental variables can lose value with repeated use because of an econometric tragedy of the commons bias: each successful use of an instrument potentially creates an additional latent variable bias problem for all other uses of that instrument - past and future. Economists should therefore consider historians' approach to inferring causality from detailed context, the plausibility of alternative narratives, external consistency, and recognition that free will makes human decisions intrinsically exogenous.
We are grateful for helpful comments from Walter Friedman, Luigi Zingales, and three anonymous referees. Partial financial support from the Social Sciences and Humanities Research Council is gratefully acknowledged The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.