Natural experiment

Updated: Aug 20, 2021

A natural experiment occurs when an exogenous change allows the estimation of the effect of a change in a single variable. For example, one US state changes a policy while other neighbouring states do not. In the absence of other changes, this allows the identification of the effect of the policy change. The name natural experiment reflects the fact that the policy change is not under the control of the investigator but has the same effect as changing a variable of interest in a controlled experiment. The value to the investigator is that natural experiments are typically conducted on large populations with all reactions natural. The standard terminology is to call the subjects exposed to the policy change the treatment group and those not exposed the control group. Natural experiments also have the benefit that if the change in policy is truly exogenous then there should be no selection bias in the allocation of subjects to the treatment or control groups. The reliahility of natural experiments may suffer from correlation among variables in the system under study. See also field experiment.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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James Knight
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