Learning in Games and the Interpretation of Natural Experiments

Abstract

We show that the treatment effect estimated by standard methods such as regression discontinuity analysis or difference-in-differences may contain a transient “learning effect” that is entangled with the long-term effect of the treatment. This learning effect occurs when the variable of interest is the agents’ efforts, when treatment and control correspond to success or failure: success or failure gives agents information about how much their effort matters, and consequently changes the amount of effort they provide after treatment. We examine the impact of the learning effect and when it is likely to be substantial. (JEL C13, C21, D72, D74, D83, I20)