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Counterfactual Analysis

Learn about counterfactual analysis and how it helps estimate treatment effects using observed data compared to conventional methods. Explore decomposing effects and biases.

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Counterfactual Analysis

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  1. Counterfactual Analysis

  2. Estimate D Y

  3. Counterfactual Analyses • The problem of conventional analyses by using observed data E [theaverage treatment effect ex: whether going to college influences individuals’ wage Selection !!

  4. Counterfactual Analyses • Decomposition Observed Unobserved

  5. Counterfactual Analyses • Decomposition The average treatment effect Baseline Bias = 0 Differential treatment effect bias = 0

  6. Counterfactual Analyses • The estimate from the conventional model = 10-5 = 5 • The effect of college on the wage in treatment group = 10-6 =4 • The effect of college on the wage in control group = 8-5=3 • The average treatment effect = 0.3(10-6)+0.7(8-5)= 3.3 = 0.3, 30% of population obtains college degrees Differential treatment effect bias

  7. Counterfactual Analyses • The biases of conventional models arefrom two assumptions Differential treatment effect bias = 0 Baseline Bias = 0

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