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.