Lecture 04

# Lecture 04 - PAM 3300 Causal Reasoning What is the effect...

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PAM 3300: Causal Reasoning

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What is the effect of participation in a program? For example: What’s the effect of washing directly after sex on the probability of contracting HIV? What’s the effect of HRT on the probability of contracting heart disease? What effect does attending college have on lifetime earnings? Etc…
Counterfactual reasoning What information do you need to know to calculate: the effect of attending college have on lifetime earnings? For a given person (you)? For a group of people (returning Iraq veterans)?

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Rubin’s Causal Model (potential outcome framework) Setup and notation: u = 1,2,3, …, N denote N different people drawn from a population U. S(u) is the ‘cause’ or ‘treatment’ to which unit u is exposed. There are two causes: S(u)=t if unit u is exposed to t (e.g., completes college) S(u)=c if unit u is exposed to c (e.g., does not finish college). Potential Outcomes Y t (u) represents outcome (income) of u if she is exposed to t Y c (u) represents outcome of u if she is exposed to c The observed Outcome is Y S Observe Y t if S=t Observe Y c if S=c
The causal effect The causal effect for u is: Y t (u) - Y c (u) Difference between the outcome that would be observed if u were exposed to t and the outcome that would be observed if u were exposed to c. Note: A causal effect (of t) is always relative (to c): it takes two ‘causes’ to define an effect

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The Fundamental Problem of Causal Inference The causal effect for u is Y t (u) - Y c (u) You need to know both potential outcomes; you can only observe one.
Example: The Fundamental Problem of Causal Inference What’s the effect of completing college on earnings? In any given population, some have completed college, and

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Lecture 04 - PAM 3300 Causal Reasoning What is the effect...

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