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Title: Can Business Owners Form Accurate Counterfactuals? Eliciting Treatment and Control Beliefs about Their Outcomes in the Alternative Treatment Status

Author(s): David J. McKenzie

Publication Date: May 2016

Keyword(s): business growth, counterfactual elicitation, randomized experiment and subjective expectations

Programme Area(s): Development Economics

Abstract: A survey of participants in a large-scale business plan competition experiment, in which winners received an average of US$50,000 each, is used to elicit beliefs about what the outcomes would have been in the alternative treatment status. Participants are asked the percent chance they would be operating a firm, and the number of employees and monthly sales they would have, had their treatment status been reversed. The study finds the control group to have reasonably accurate expectations of the large treatment effect they would experience on the likelihood of operating a firm, although this may reflect the treatment effect being close to an upper bound. The control group dramatically overestimates how much winning would help them grow the size of their firm. The treatment group overestimates how much winning helps their chance of running a business, and also overestimates how much winning helps them grow their firms. In addition, these counterfactual expectations appear unable to generate accurate relative rankings of which groups of participants benefit most from treatment.

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Bibliographic Reference

McKenzie, D. 2016. 'Can Business Owners Form Accurate Counterfactuals? Eliciting Treatment and Control Beliefs about Their Outcomes in the Alternative Treatment Status'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11280