Counterfactuals in economics and allied social sciences: Methods, applications, and debates
Published in Reference Module in Social Sciences, 2025
Abstract
Empirical economics has been transformed by the “credibility revolution”, which centers on the principle that credible causal claims require well-designed strategies for constructing valid counterfactuals. This chapter explores how counterfactual thinking and quasi-experimental methods have transformed applied microeconomics, macroeconomics, economic history, and the broader social sciences. It examines the toolkit of modern causal inference, including randomized controlled trials, difference-in-differences, and synthetic control methods, and discusses their strengths and limitations. The chapter concludes by addressing key challenges, such as model dependence and external validity.Recommended citation: Punongbayan, J.C.B. and A.R. Paloyo (2025). Counterfactuals in economics and allied social sciences: Methods, applications, and debates. In Reference Module in Social Sciences. Elsevier.
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