MULT30018 Lecture Notes - Lecture 8: Ruin Theory, Counterfactual Thinking, Causal InferencePremium
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WEEK 8 - Counterfactuals ('what if' thought experiments)
What is a counterfactual?
• Means contrary to facts
• In everyday parlance counterfactuals are 'what if' thought experiments
• We run counterfactuals in our minds just about everyday
• Can be positive or negative
Counterfactuals and causation
• Remember, counterfactual thinking is implicit in all our thinking about causation up to this
• With observational data our counterfactual is imagined whereas with experiments it is real
• The power of experiments is that they create true counterfactuals (they hold the world
constant while manipulating one factor)
• Lot's of contingency in the world, can imagine alternative worlds, not always positive or all
• Except in movies, we cant re-run history
• Reality is complicated (contingent) so we cant really say only x then y
2000 election Bush v. Gore
Counterfactuals in social science
• Counterfactuals are at the heart of what historians do
• Counterfactuals can only be avoided if we avoid ALL causal inference
• Most social science questions have an interesting counterfactual
• Regression and experiments are often inadequate
So what? What are counterfactuals good for?
• Counterfactuals help reveal logical inconsistencies
• Counterfactuals make us aware of contingency of history
• We should always ask: what is the counterfactual?
• If (antecedent) not, would (consequent)?
• For social science
o Need history to do counterfactuals but not the social science
o Politics - international relations, the biggest field for counterfactuals
• Thought experiments become their primary mode
• Don’t do quants because they don’t have access to data
• Cant do a lot of things, a lot of their theories are based on counterfactuals
• Trying to utilize our knowledge to predict what people are going to do in the future
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