Average Treatment Effect - General Definition

General Definition

Originating from early statistical analysis in the fields of agriculture and medicine, the term "treatment" is now applied, more generally, to other fields of natural and social science, especially psychology, political science, and economics such as, for example, the evaluation of the impact of public policies. The nature of a treatment or outcome is relatively unimportant in the estimation of the ATE—that is to say, calculation of the ATE requires that a treatment be applied to some units and not others, but the nature of that treatment (e.g., a pharmaceutical, an incentive payment, a political advertisement) is irrelevant to the definition and estimation of the ATE.

The expression "treatment effect" refers to the causal effect of a given treatment or intervention (for example, the administering of a drug) on an outcome variable of interest (for example, the health of the patient). In the Neyman-Rubin "Potential Outcomes Framework" of causality a treatment effect is defined for each individual unit in terms of two "potential outcomes." Each unit has one outcome that would manifest if the unit were exposed to the treatment and another outcome that would manifest if the unit were exposed to the control. The "treatment effect" is the difference between these two potential outcomes. However, this individual-level treatment effect is unobservable because individual units can only receive the treatment or the control, but not both. Random assignment to treatment ensures that units assigned to the treatment and units assigned to the control are identical (over a large number of iterations of the experiment). Indeed, units in both groups have identical distributions of covariates and potential outcomes. Thus the average outcome among the treatment units serves as a counterfactual for the average outcome among the control units. The differences between these two averages is the ATE, which is an estimate of the central tendency of the distribution of unobservable individual-level treatment effects. If a sample is randomly constituted from a population, the ATE from the sample (the SATE) is also an estimate of the population ATE (or PATE).

While an experiment ensures, in expectation, that potential outcomes (and all covariates) are equivalently distributed in the treatment and control groups, this is not the case in an observational study. In an observational study, units are not assigned to treatment and control randomly, so their assignment to treatment may depend on unobserved or unobservable factors. Observed factors can be statistically controlled (e.g., through regression or matching), but any estimate of the ATE could be confounded by unobservable factors that influenced which units received the treatment versus the control.