Lecture 22 Regression Discontinuity

Nick Huntington-Klein

We’ve been going over ways in which we can use control groups to isolate causal effects
We can select similar control groups using matching or controlling (what economists call “selection on observables”)
We can use a treated group at a different time as its own control group with fixed effects
When a treatment is applied at a particular time, we can select a reasonable control to account for the effects of time using difference-in-difference (a “natural experiment”)

We’re going to go over one other way in which we can find and isolate a very convincing control group
Like DID, it’s also an example of a natural experiment
Regression discontinuity

For regression discontinuity to work, we need the Treatment to be assigned based on a cutoff of what’s called a “running variable”
For example, imagine we want to know the effects of being in a Gifted and Talented (GATE) program on your adult earnings
Being admitted to the program is based on your test score (running variable)
If you score above 75, you’re in the program. 75 or below, you’re out!

Now, we have a bit of a problem!
If we look at the relationship between treatment and going to college, we’ll be picking up the fact that higher test scores make you more likely to go to college anyway