Sinning in the Basement: What are the Rules? The Ten Commandments of Applied Econometrics

Abstract

Unpleasant realities of real‐world data force applied econometricians to violate the prescriptions of econometric theory as taught by our textbooks. Leamer (1978) vividly describes this behavior as wanton sinning in the basement, with sinners’ metamorphizing into high priests as they ascend to the third floor to teach econometric theory. But this sinning is not completely wanton — applied econometricians do (or should) follow some unwritten rules of behavior, in effect bounding the sinning and promoting a brand of honor among sinners. This paper exposits these rules, and culls from them an unauthorized list of the Ten Commandments of applied econometrics.