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Validate DID and IV assumptions rigorously

Last updated: Mar 29, 2026

Quick Overview

This question evaluates mastery of causal inference and applied econometrics, specifically difference-in-differences, two-way fixed effects, staggered adoption and treatment heterogeneity, instrumental variables (2SLS), clustering, and GMM-based inference.

  • hard
  • Amazon
  • Statistics & Math
  • Data Scientist

Validate DID and IV assumptions rigorously

Company: Amazon

Role: Data Scientist

Category: Statistics & Math

Difficulty: hard

Interview Round: HR Screen

1) Derive the 2×2 DID estimand τ = (Ȳ_T,post − Ȳ_T,pre) − (Ȳ_C,post − Ȳ_C,pre) from the parallel trends assumption, and show its equivalence to a TWFE regression with a treatment×post interaction under homogeneous treatment effects. 2) Explain why TWFE is biased with staggered adoption and heterogeneous effects; describe and contrast Sun–Abraham and Callaway–Sant’Anna estimators, and outline how you would compute an event-study with proper cohort weights. 3) State precisely how you would cluster standard errors (and when to use wild cluster bootstrap) given household-level interference and market-level shocks; discuss consequences of too few clusters. 4) Propose a plausibly exogenous instrument for reminder exposure (e.g., exogenous send-throttling or an email provider outage that differentially delayed reminders), write the 2SLS setup (first stage and structural equation), and the GMM moment conditions. 5) Describe tests for instrument strength and validity (Stock–Yogo weak-IV thresholds, first-stage F, Hansen J overidentification) under heteroskedasticity and clustering, and interpret a case where F≈8 and J is insignificant.

Quick Answer: This question evaluates mastery of causal inference and applied econometrics, specifically difference-in-differences, two-way fixed effects, staggered adoption and treatment heterogeneity, instrumental variables (2SLS), clustering, and GMM-based inference.

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Amazon
Oct 13, 2025, 9:49 PM
Data Scientist
HR Screen
Statistics & Math
4
0

Causal Inference and IV: DID, TWFE, Staggered Adoption, Clustering, and 2SLS

Context: You are analyzing the causal effect of a reminder on an outcome using panel data with units (e.g., households) observed over time, nested within markets. Treatment adoption is potentially staggered across cohorts (markets/entities adopt in different periods), and reminder exposure may be partly exogenous due to operational constraints (e.g., throttling or outages).

1) 2×2 DID estimand and TWFE equivalence

  • Derive the 2×2 DID estimand: τ = (Ȳ_T,post − Ȳ_T,pre) − (Ȳ_C,post − Ȳ_C,pre) from the parallel trends assumption using potential outcomes.
  • Show equivalence to a two-way fixed effects (TWFE) regression with a treatment×post interaction when treatment effects are homogeneous.

2) TWFE with staggered adoption and heterogeneous effects; modern alternatives

  • Explain why TWFE is biased with staggered adoption and heterogeneous treatment effects.
  • Describe and contrast the Sun–Abraham and Callaway–Sant’Anna estimators.
  • Outline how to compute an event-study with proper cohort weights.

3) Standard errors: clustering and bootstrap

  • State precisely how to cluster standard errors given household-level interference and market-level shocks.
  • When should you use a wild cluster bootstrap, and what are the consequences of too few clusters?

4) Instrumental variables for reminder exposure

  • Propose a plausibly exogenous instrument for reminder exposure (e.g., exogenous send-throttling or an email provider outage that differentially delayed reminders).
  • Write the 2SLS setup: first stage and structural equation with appropriate fixed effects.
  • Provide the GMM moment conditions.

5) Tests for instrument strength and validity

  • Describe tests for instrument strength and validity under heteroskedasticity and clustering (Stock–Yogo weak-IV thresholds, first-stage F, Hansen J overidentification).
  • Interpret a case where the first-stage F ≈ 8 and the J test is insignificant.

Solution

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