Counterfactual Thinking

From the Wikipedia entry for counterfactual thinking:

A person may imagine how an outcome could have turned out differently, and they can reflect on how the antecedents that led to the event might have been different….

Austin emails in response to my Office Hours: Competitive Bidding post:

But I think, more fundamentally, the flaw in your student’s thinking is comparing competitive bidding (or anything) to a hypothetical ideal. One needs to compare everything to the status quo and in the context of the politically feasible. Private plan participation in Medicare does not seem to be going away, so that’s a fantasy not worth using as a basis to dismiss competitive bidding.

Austin is saying that the counterfactual is wrong if it assumes private plans in Medicare will go away (I agree). I should say the kid in question had likely never thought about Medicare 10 days prior to this event and was digging hard. If anyone was flawed in the exchange it was me. One of the realities of being a college professor at a research University is that you are supposed to do research, teaching and service. I am always thinking of stuff I wish I had said (said better!) to students in office hours (as three more students await their turn; actually, there is only a line the week before the test but I digress).

One thing I did tell my students in this class (and in all of my classes) is that the counterfactual is the most important thing in public policy. In fact, my colleague Elizabeth Vigdor and I have discussed developing a proposal for a new undergraduate class in public policy at Duke called The Counterfactual because there is so much flawed counterfactual thinking in public policy.

The Wikipedia entry above imagines ex post counterfactual thinking. An example:

  • The stimulus was predicted to hold unemployment below 8.5%; it did not. Did the stimulus fail? It depends on the counterfactual of what would unemployment have been without the stimulus? The prediction was wrong, but that doesn’t tell you what would have happened without the stimulus.

The interaction with my student is about ex ante counterfactual thinking:

  • What are the possibilities for the reform of Medicare with regards to private plans?

Austin rightly says that politically speaking, private plans in Medicare are not going away and there is likely a great deal of pressure to expand them. The question is how? Given that private plans in Medicare are a (30 year at least?) reality, the question becomes how will they be structured? A counterfactual with no private Medicare plans is unrealistic, so such a “fantasy future” should not be used to dismiss competitive bidding. I don’t think the student in question wrote off competitive bidding as an option, s/he was focused on whether private plans could save Medicare money, which may not be the correct question. I don’t write off competitive bidding either and would like to see it fully tried and evaluated.

About Don Taylor
Professor of Public Policy at Duke University (with appointments in Business, Nursing, Community and Family Medicine, and the Duke Clinical Research Institute). I am one of the founding faculty of the Margolis Center for Health Policy, and currently serve as Chair of Duke's University Priorities Committee (UPC). My research focuses on improving care for persons who are dying, and I am co-PI of a CMMI award in Community Based Palliative Care. I teach both undergrads and grad students at Duke. On twitter @donaldhtaylorjr

3 Responses to Counterfactual Thinking

  1. Jonathan says:

    Hi Don,
    If you pursue this class will you be judging the different counterfactuals by the method employed? The counterfactuals are very different between a randomized experiment when compared to a project involving regression discontinuity. I agree with you we do not consider counterfactuals enough (or the identifying variation). But we also need to consider what the methods employed say about each of these things. Each of these methods will say very different things. Regardless keep us posted if you come up with a class on this subject I bet it will be fantastic!

    • Don Taylor says:

      @Jonathan
      It would have to take account the different types of evidence one could have, and at some level a course such as this is about inference. The biggest barrier to such a course is all profs saying they already do this in all their courses and so it gets knocked down by a committee,etc. In particular, there is lots of fruitful thinking to be done about the use of RCTs in public policy and whether they actually constitute the gold standard in all cases (I think they probably do not always), esp with very complicated interventions. Will keep apprised.

  2. the bok says:

    On a more realistic level, no one has ever shown me why insurance companies would want to cover the elderly: they cost more and premiums would have to be enormous to cover cost (absent government help) and provide a nominal profit. What incentive does an insurance company have to cover the most risky group? I have MS and when I was searching for private insurance at age 38 or so I was quoted about 3k a month; which, even for a lawyer, was just too much and so I went without. Then when my ms got worse and I went on ssdi- presto- I was covered. I would assume that my projected insurance cost did not change but now the government helped. Otherwise, I would still have been uninsured. I can only imagine that most seniors would rate 3k or so in premium costs per month and how many of them can pay that w/out government help? This is not really ‘competitive bidding’ in a real way; it is bidding knowing that your costs are being borne, to a degree, by the government. Remove the help and do you really think ANY insurance company would cover the elderly?

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