The enormous potential of econometrics

The enormous potential of econometrics

Marcel Das is the director of CentERdata and professor of Econometrics and Data Collection at the department of Econometrics and OR.

A new academic year, a new columnist. Although I have a formal appointment as professor of Econometrics and Data Collection at the department of Econometrics and Operations Research, I assume many (if not all) Econometrics students do not know me. Certainly not from the class room, maybe from seeing my face on the Tilburg University campus.

I finished my Econometrics study in Tilburg almost 25 years ago, and (how time flies) never left. Since September 2000 I have been the director of CentERdata, a non-profit research institute housed on the Tilburg University campus. Currently we are located on the 3rd and 4th floor of the Intermezzo building: in case you have visited the Albert Heijn ‘on campus’, just look at the opposite building. CentERdata collects data, mainly for the academic sector, using advanced online household panels. In addition, the institute is specialized in (behavioral) policy research and software development.

Before my job at CentERdata I worked as a PhD researcher at CentER Applied Research and as assistant professor at the department of Econometrics and Operations Research. As researcher at CentER Applied Research, I have carried out a wide variety of (applied) research projects, using various econometric and statistical techniques, and thus experienced the enormous potential of econometrics.

In the field of financial econometrics I collaborated in several projects with former columnist Theo Nijman. In December 2014, Theo discussed in his column a nice real-life application: a label to alert retail investors to risky investment products. Preliminary work for this label has been carried out in a project that was commissioned by the Ministry of Finance.
Other projects with Theo (and others) focused on the estimation of interest rate risks, the pricing of employee options and the relation between governance and financial performances of listed companies. In a project commissioned by Pension Fund ABP, we developed a software tool for stock selection.
All applied projects used econometric models, and believe me, there is no need for extremely complicated models and estimation techniques. The techniques that were used are quite simple, and still very valuable in these real-life applications.  

In a different field, however still with the use of econometric models and techniques, I collaborated with Arthur van Soest. We focused on a discrete choice structural labor supply model and analyzed first order labor supply effects of a proposed tax reform. We showed that the reform could have distortionary effects on segments of the labor market with many (small) part-time jobs (such as a large part of the health care sector). For policy makers extremely relevant to know, since there were still opportunities to repair this in the proposed tax reform.

What I have learned in my statistics courses has been applied in a range of projects together with Ben van der Genugten (now emeritus professor in Statistics). We analyzed many (casino) games. A method to determine whether a game should be classified as game of skill or game of chance was applied to a wide range of games, including variations of the standard Blackjack game. Projects were commissioned by lawyers, judges, the Dutch government and the gaming industry itself. Application of hard core statistics, with a lot of fun!

In case you still have some doubts whether you made the right choice in studying econometrics, think of the enormous potential you have as a graduated econometrician. The above examples are just a few illustrations of how econometrics can be applied and can be helpful in solving real-life cases; other examples related to Operations Research can be found in the columns written by my predecessors (Hein Fleuren and Goos Kant). And in case you have problems in choosing the exact direction within the field of Econometrics: don’t worry. Studying Econometrics provides a solid basis for any future job!

Text by: Marcel Das