Ciclo di seminari dipartimentali a.a. 2018/19

Learning in Games and the Interpretation of Natural Experiments

Interviene: David K. Levine, European University Institute

ABSTRACT

We examine natural experiments where the variable of interest is the effort levels of the agents,
the treatment and control correspond to success or failure, and there is unobserved heterogeneity
in the agents’ efforts. We show that in such experiments the treatment effect estimated by
standard methods such as regression discontinuity analysis or difference-in-difference may
contain a transient learning effect that is entangled with the structural long-term effect of the
treatment. This learning effect occurs when agents are uncertain of the effectiveness of their
effort: their success or failure signals agents how much their effort matters to success, and
consequently changes the amount of effort they provide after treatment. We examine which
direction the effect goes and when it is likely to be present. We illustrate this with applications
taken from the literature, and show how under some circumstances the presence of learning can
alter policy conclusions.