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Lecture 4.Lecture 4.

Experiments andExperiments andcausal designcausal design

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Learning objetivesLearning objetives

To understand what are experiments in theTo understand what are experiments in the

economy and in business.economy and in business. To know different types of experiments andTo know different types of experiments and

their lacks.their lacks.

To identify variables that can affectTo identify variables that can affectexperimental designs.experimental designs.

How to design true causal experiments.How to design true causal experiments.

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1. Causality and experiments1. Causality and experiments

CausaltyCausalty; one fact is the consequence of another.; one fact is the consequence of another. ExperimentExperiment; setting the conditions to identify; setting the conditions to identify

causal relations.causal relations. Direct experimentDirect experiment; a theory supports the; a theory supports the

experiment.experiment. Indirect experimentIndirect experiment; there are not supporting; there are not supporting

theories to explain causal relations.theories to explain causal relations. Independent variablesIndependent variables; variables under control.; variables under control. Dependent variablesDependent variables; reacting variables to causes.; reacting variables to causes. Proof unitsProof units; the reacting persons, products, brands,; the reacting persons, products, brands,

and so on.and so on. ValidtyValidty..

InternalInternal; a cause has one effect.; a cause has one effect. ExternalExternal; if the same cause allways generates; if the same cause allways generatesthe same effect.the same effect.

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ExperimentExperiment

Is a scientific investigation inIs a scientific investigation in

which the investigator manipulateswhich the investigator manipulatesvariable/s to observ variations invariable/s to observ variations inother/s variables.other/s variables.

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2. Conditions for experiments2. Conditions for experiments

Facts happen along the time. The causeFacts happen along the time. The cause

alwaysalways foregoesforegoes the consequence.the consequence.

ConcomitantConcomitant variation. Facts happen within avariation. Facts happen within avery shot time period.very shot time period.

Extraneous variablesExtraneous variables must be isolated.must be isolated.

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ValidityValidity

Internal validity: there is anInternal validity: there is anobserved cause-effect relation.observed cause-effect relation.

External validity: the relationExternal validity: the relationcan be generalized.can be generalized.

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3. Extraneous variables3. Extraneous variables

History.History.

Maturity.Maturity.

Main effect.Main effect.

Interactive effect.Interactive effect.

Testing effect or Instrumental effectTesting effect or Instrumental effect RegressionRegression

Bias in selecting the unitsBias in selecting the units

Mortality.Mortality.

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Controlling extraneous variablesControlling extraneous variables

Units must be randomly selected.Units must be randomly selected.

Units must be similar.Units must be similar.

Use experimental designs.Use experimental designs.

Use statistics for data treatment.Use statistics for data treatment.

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4. Some experimental designs4. Some experimental designs

Designs

Preexperimental Experimental Statistical Laboratory

One shotcase study

One groupPretest

Postest

Staticcomparison

GroupsControlPretestPostest

4 groupsSolomon

Random

Random

Blocks

Latin square

AbelsonKellyAschTaylor

Blind testsAd test

Sketching

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5. Laboratory experiments5. Laboratory experiments

Blind test.Blind test.

Ad test (pre-post)Ad test (pre-post)

Sketching.Sketching. Abelson test.Abelson test.

Kelly grid technique.Kelly grid technique.

Taylor experiment.Taylor experiment.

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Control pretest-postestControl pretest-postest

EG: R1 ------------> R2CG: R3 ------------> R4

The experiment effect is measured,(R2 - R1) - (R4 - R3)

R2 - R1 = experiment effect+ interactive effectinteractivo + main effect + history + maturity +

testing bias + regression + mortality

R4 - R3 = main effcet+ history + maturity + testingbias + regression + mortality

(R2 - R1) - (R4 - R3) = experiment effect+ interactiveeffect

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7. Statitiscal experimental design7. Statitiscal experimental design

RandomRandom ; one variable under control;; one variable under control;

priceprice oror ad budget.ad budget.

Random block;Random block; two variables undertwo variables undercontrol; pricecontrol; price andand package.package.

Latin squareLatin square; three variables under; three variables under

control; prices, ad and package.control; prices, ad and package.

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Random experimentRandom experiment

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ResultsResults

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Random blocksRandom blocks

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ResultsResults

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Latin squareLatin square

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Latin squareLatin square

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ResultsResults

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Assesing experimental methodAssesing experimental method

Statistical lacksStatistical lacks.. Data must be normally distributed.Data must be normally distributed.

Data are expected to be homodedastic.Data are expected to be homodedastic.

Effects are considered aditive.Effects are considered aditive.

It is difficult to isolate the experimental conditions.It is difficult to isolate the experimental conditions. Markets.Markets.

Short term.Short term.

Competitors can react and interfere.Competitors can react and interfere.

Experiments are expensive.Experiments are expensive.