Part III · Chapter 7

Causal Designs for Field Data

Build the missing counterfactual — then trust the effect only as far as the design that produced it.

This chapter covers how to recover causal effects from field data no one randomized — a feature that ships region by region, a store format that opens in one city, a policy that lands in a single state. It works through difference-in-differences and its parallel-trends assumption, synthetic control's optimizer-built weighted twin (illustrated on Colorado housing and the Zillow Home Value Index after 2014 cannabis legalization), and heterogeneous treatment effects, where a single average lift hides which segments actually pay. Worked cases — a Bean & Basket checkout rollout, a Denver store format, and an income-stratified milk-pricing experiment — show why the headline number is rarely the decision-relevant one, and why an effect is only as trustworthy as the design that produced it.

Topics covered

difference-in-differences 2×2the parallel-trends assumptiontwo-way fixed effects regressionevent-study pre-trend plotsstaggered adoption (Callaway–Sant'Anna, Sun–Abraham)synthetic control weightingplacebo permutation testsheterogeneous treatment effectsper-segment expected-profit targeting

In this chapter

  1. 7.1Difference-in-DifferencesDerives the difference-in-differences estimator as an interaction coefficient and shows why parallel trends, checked via event-study plots, is everything.
  2. 7.2Synthetic ControlBuilds a weighted donor twin for a single treated market, demonstrated on Colorado housing prices after 2014 cannabis legalization.
  3. 7.3Heterogeneous Treatment EffectsSplits the average effect into per-segment lifts for targeting, warning against post-treatment colliders, p-hacking, and noisy-subgroup illusions.

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