Under the common law, lawyers are not allowed to ask witnesses “leading questions,” as witnesses can be influenced by the way questions are asked. A leading question is one that suggests a particular answer, for instance, “Were you at the country club on Saturday night?” is a leading question, while, “Where were you on Saturday night?” is not.

Econometricians should be as careful as lawyers when questioning the most unreliable of all witnesses: economic data. Most statistical software will automatically spit out t-tests for whether the coefficients in regression models equal zero. This is equivalent to asking the data, “Data, given these modelling assumptions, can you deny with 95% certainty that this coefficient equals zero?” That’s a leading question, and the econometrician shouldn’t ask it unless he has special reason to suspect that the coefficient is zero.

For example, suppose an economist was attempting to test the effect on employment of an increase in the minimum wage (I choose this example only because I am familiar with it). If he observes many people working below the new minimum immediately before it goes into effect, he can believe with high certainty that the new minimum will be binding. Furthermore, if he observes many businesses employing low-skilled workers, as well as a stream of new businesses entering the market for low-skilled labour, he can believe with high certainty that the market for low-skilled labour is competitive rather than monopsonistic. Putting on his economist hat, he can infer from these two observations that the reduction in employment caused by the minimum wage will correspond to the elasticity of the demand curve for low-skilled labour.

Given this situation, would it be appropriate for this economist to ask the data, “Data, given these modelling assumptions, can you deny with 95% certainty that the minimum wage has zero effect on employment?” I hope the reader can see the problem with such a question. The economist has no special reason to believe that the demand curve for low-skilled labour is perfectly inelastic, any more than he has a special reason to believe that this demand curve has an elasticity of exactly 0.73. The question he should be asking is, in the case of this particular historical event, how much did the increase in the minimum wage increase unemployment? “Not at all” is a valid answer, but with no special reason to believe it is the correct answer, he should not bias his conclusion by phrasing the question in such a way that he leads his “witness” to favour zero.