about questions

∙ What is the causal relationship of interest?

∙ Which experiment could be used to ideally capture the causal
effect of interest?
∙ What is your identification strategy? – FUQs?
∙ What is your mode of statistical inference?

Identification Strategy The manner in which the research uses

observational data to approximate a real experiment
Statistical Inference * Describes the population to be studied *
Sample to be used * Assumptions made in
constructing standard errors.

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causal relation

I would rather discover one causal law than be King of

Persia.
Democritus (460-370 B.C.)

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potential outcome framework

Table: Health Status NHIS 2005 (1:excellent - 5:poor)1

Group Sample Size Mean Health Status Std.Error

Hospital 7,774 2.79 0.014
No Hospital 90,049 2.07 0.003

The difference in the means is 0.71, large and significant in favor or

non-hospitalized
!
Y1i if Di = 1
Potential Outcome =
Y0i if Di = 0
= Y0i + (Y1i − Y0i )Di

1
Angrist & Pischke, MHE p.10
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potential outcome framework

!
Y1i if Di = 1
Potential Outcome =
Y0i if Di = 0
Y0i + (Y1i − Y0i )Di
=
" # " #
Y1i Y0i
∙ If is observed then is the unobserved
Y0i Y1i
counterfactual2 .

2
See Rubin, 1974, 1977, 1978, 1980, and Holland, 1986
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potential outcome framework

!
Y1i if Di = 1
Potential Outcome =
Y0i if Di = 0
Y0i + (Y1i − Y0i )Di
=
" # " #
Y1i Y0i
∙ If is observed then is the unobserved
Y0i Y1i
counterfactual2 .
∙ The impossibility of directly observing (Y1i − Y0i ) is referred to as
The Fundamental Problem of Causal Inference (Holland 1986).

2
See Rubin, 1974, 1977, 1978, 1980, and Holland, 1986
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potential outcome : observed means

E[Yi |Di = 1] − E[Yi |Di = 0] = E[Y1i |Di = 1] − E[Y0i |Di = 1] +

$ %& ' $ %& '
Observed Difference in Average Health Average Treatment Effect on the Treated
E[Y0i |Di = 1] − E[Y0i |Di = 0]
$ %& '
Selection Bias

∙ The term E[Y1i |Di = 1] − E[Y0i |Di = 1] = E[Y1i − Y0i |Di = 1] is the
Average Causal Effect of Treatment on the Treated (ATT).
∙ In the Selection Bias term if people with worse-off outcomes are
selected for treatment, i.e. E[Y0i |Di = 1] < E[Y0i |Di = 0], then the
negative selection bias might completely mask or even reverse
the causal effect of interest.

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the randomized experiment
random assignment solves the selection problem

E[Yi |Di = 1] − E[Yi |Di = 0] = E[Y1i |Di = 1] − E[Y0i |Di = 0]

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random assignment solves the selection problem

E[Yi |Di = 1] − E[Yi |Di = 0] = E[Y1i |Di = 1] − E[Y0i |Di = 0]

= E[Y1i |Di = 1] − E[Y0i |Di = 1]

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random assignment solves the selection problem

E[Yi |Di = 1] − E[Yi |Di = 0] = E[Y1i |Di = 1] − E[Y0i |Di = 0]

= E[Y1i |Di = 1] − E[Y0i |Di = 1]
= E[Y1i − Y0i |Di = 1]

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random assignment solves the selection problem

E[Yi |Di = 1] − E[Yi |Di = 0] = E[Y1i |Di = 1] − E[Y0i |Di = 0]

= E[Y1i |Di = 1] − E[Y0i |Di = 1]
= E[Y1i − Y0i |Di = 1]
= E[Y1i − Y0i ]

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