Beyond the Average: Machine Learning for Personalized Causal Inference in Econometrics

Abstract

In the realm of econometrics, the estimation of average treatment effects (ATE) has traditionally dominated causal inference, often oversimplifying the complex, heterogeneous nature of individual responses to interventions. This study introduces a nuanced approach, "Beyond the Average: Personalized Causal Inference in Econometrics with Machine Learning, " which leverages advanced machine learning (ML) algorithms to shift the focus towards personalized causal effects (PCE), thereby uncovering the variability in treatment effects across individuals. Utilizing a synthetic dataset designed to reflect realistic economic behaviors and responses, we employed Gradient Boosting Machines (GBM) and Causal Forests among other ML techniques to estimate conditional average treatment effects (CATE), providing insights into the heterogeneity of treatment impacts. Our methodology encompassed comprehensive data preprocessing, feature selection based on economic theory and ML insights, and rigorous model validation processes. The results reveal significant heterogeneity in treatment effects, challenging the conventional reliance on ATE and highlighting the importance of considering individual characteristics in policy design and evaluation. Specifically, younger individuals and those with lower income and education levels exhibited markedly different responses to the financial literacy intervention, suggesting that personalized approaches could significantly enhance the effectiveness of such programs. This study not only demonstrates the feasibility and value of applying ML to econometric analysis for personalized causal inference but also lays the groundwork for future research aimed at integrating these methodologies into practical policy - making. By moving beyond the average and embracing the complexity of individual differences, econometric analysis can offer more targeted, effective, and equitable solutions to societal challenges.