Counterfactual Inference

This tutorial will review the literature that brings together recent developments in machine learning with methods for counterfactual inference. It will focus on problems where the goal is to estimate the magnitude of causal effects, as well as to quantify the researcher’s uncertainty about these magnitudes. The tutorial will consider two strands of the literature. The first strand attempts to estimate causal effects of a single intervention, like a drug or a price change. The goal can be to estimate the average (counterfactual) effect of applying the treatment to everyone; or the conditional average treatment effect, which is the effect of applying the treatment to an individual conditional on covariates. We will also consider the problem of estimating an optimal treatment assignment policy (mapping features to assignments) under constraints on the nature of the policy, such as budget constraints. We look at applications to assigning unemployed workers to re-employment services. We finish by considering the case with multiple alternative treatments, as well as the link between this literature and the literature on contextual bandits. The second strand of the literature attempts to infer individual’s preferences from their behavior (inverse reinforcement learning in machine learning parlance, or structural estimation in econometrics parlance), and then predict an individual’s behavior in new environments. We look at applications to consumer choice behavior, and analyze counterfactuals around price changes. We discuss how models such as these can be tuned when the goal is counterfactual estimation rather than predicting outcomes.