Econometrics exams and round numbers: Use or misuse of indirect estimation methods?

Abstract

ABSTRACTThe use of Monte Carlo methods to generate exam datasets is nowadays a well-established practice among econometrics and statistics examiners all over the world. Its advantages are well known: providing each student a different data set ensures that estimates are actually computed individually, rather than copied from someone sitting nearby. The method however has a major fault: initial “random errors,” such as mistakes in downloading the assigned dataset, might generate downward bias in student evaluation. We propose a set of calibration algorithms, typical of indirect estimation methods, that solve the issue of initial “random errors” and reduce evaluation bias. Ensuring round initial estimates of the parameters for each individual dataset, our calibration procedures allow the students to determine if they have started the exam correctly. When initial estimates are not round numbers, this random error in the initial stage of the exam can be corrected for immediately, thus reducing evaluation bias. The procedure offers the further advantage of rounding markers’ life by allowing them to check round numbers answers only, rather than lists of numbers with many decimal digits1.