## Faites Attention! Dealing with Inattentive and Insincere Respondents in Experiments

11 Jul

Respondents who don’t pay attention or respond insincerely are in vogue (see the second half of the note). But how do you deal with such respondents in an experiment?

To set the context, a toy example. Say that you are running an experiment. And say that 10% of the respondents, in a rush to complete the survey and get the payout, don’t read the survey question that measures the dependent variable and respond randomly to it. In such cases, the treatment effect among the 10% will be centered around 0. And including the 10% would attenuate the Average Treatment Effect (ATE).

More formally, in the subject pool, there is an ATE that is E[Y(1)] – E[Y(0)].  You randomly assign folks, and under usual conditions, they render a random sample of Y(1) or Y(0), which in expectation retrieves the ATE.  But when there is pure guessing, the guess by subject i is not centered around Y_i(1) in the treatment group or Y_i(0) in the control group.  Instead, it is centered on some other value that is altogether unresponsive to treatment.

Now that we understand the consequences of inattention, how do we deal with it?

We could deal with inattentive responding under compliance, but it is useful to separate compliance with the treatment protocol, which can be just picking up the phone, from attention or sincerity with which the respondent responds to the dependent variables. On a survey experiment, compliance plausibly adequately covers both, but cases where treatment and measurement are de-coupled, e.g., happen at different times, it is vital to separate the two.

On survey experiments, I think it is reasonable to assume that:

1. the proportion of people paying attention are the same across Control/Treatment group, and
2. there is no correlation between who pays attention and assignment to the control group/treatment group, e.g., men are inattentive in the treatment group and women in the control group.

If the assumptions hold, then the worst we get is an estimate on the attentive subset (principal stratification). To get at ATE with the same research design (and if you measure attention pre-treatment), we can post-stratify after estimating the treatment effect on the attentive subset and then re-weight to account for the inattentive group.

The experimental way to get at attenuation would be to manipulate attention, e.g., via incentives, after the respondents have seen the treatment but before the DV measurement has begun. For instance, see this paper.

Attenuation is one thing, proper standard errors another. People responding randomly will also lead to fatter standard errors, not just because we have fewer respondents but because as Ed Haertel points out (in personal communication):

1. “The variance of the random responses could be [in fact, very likely is: GS] different [from] the variances in the compliant groups.”
2. Even “if the variance of the random responses was zero, we’d get noise because although the proportions of random responders in the T and C groups are equal in expectation, they will generally not be exactly the same in any given experiment.”

## What’s Best? Comparing Model Outputs

10 Mar

Let’s assume that you have a large portfolio of messages: n messages of k types. And say that there are n models, built by different teams, that estimate how relevant each message is to the user on a particular surface at a particular time. How would you rank order the messages by relevance, understood as the probability a person will click on the relevant substance of the message?

Isn’t the answer: use the max. operator as a service? Just using the max. operator can be a problem because of:

a) Miscalibrated probabilities: the probabilities being output from non-linear models are not always calibrated. A probability of .9 doesn’t mean that there is a 90% chance that people will click it.

b) Prediction uncertainty: prediction uncertainty for an observation is a function of the uncertainty in the betas and distance from the bulk of the points we have observed. If you were to randomly draw a 1,000 samples each from the estimated distribution of p, a different ordering may dominate than the one we get when we compare the means.

This isn’t the end of the problems. It could be that the models are built on data that doesn’t match the data in the real world. (To discover that, you would need to compare expected error rate to actual error rate.) And the only way to fix the issue is to collect new data and build new models of it.

Comparing messages based on propensity to be clicked is unsatisfactory. A smarter comparison would take optimize for profit, ideally over the long term. Moving from clicks to profits requires reframing. Profits need not only come from clicks. People don’t always need to click on a message to be influenced by a message. They may choose to follow-up at a later time. And the message may influence more than the person clicking on the message. To estimate profits, thus, you cannot rely on observational data. To estimate the payoff for showing a message, which is equal to the estimated winning minus the estimated cost, you need to learn it over an experiment. And to compare payoffs of different messages, e.g., encourage people to use a product more, encourage people to share the product with another person, etc., you need to distill the payoffs to the same currency—ideally, cash.

## Expertise as a Service

3 Mar

The best thing you can say about Prediction Machines, a new book by a trio of economists, is that it is not barren. Most of the growth you see is about the obvious: the big gain from ML is our ability to predict better, and better predictions will change some businesses. For instance, Amazon will be able to move from shopping-and-then-shipping to shipping-and-then-shopping—you return what you don’t want—if it can forecast what its customers want well enough. Or, airport lounges will see reduced business if we can more accurately predict the time it takes to reach the airport.

Aside from the obvious, the book has some untended shrubs. The most promising of them is that supervised algorithms can have human judgment as a label. We have long known about the point. For instance, self-driving cars use human decisions as labels—we learn braking, steering, speed as a function of road conditions. But what if we could use expert human judgment as a label for other complex cognitive tasks? There is already software that exploits that point. Grammarly, for instance, uses editorial judgments to give advice about grammar and style. But there are so many places other we could exploit this. You could use it to build educational tools that gives guidance on better ways of doing something in real time. You could also use it to reduce the need for experts.

p.s. The point about exploiting the intellectual property of experts deserves more attention.

4 Jan

## The Benefit of Targeting

16 Dec

What is the benefit of targeting? Why (and when) do we need experiments to estimate the benefits of targeting? And what is the right baseline to compare against?

I start with a business casual explanation, using examples to illustrate some of the issues at hand. Later in the note, I present a formal explanation to precisely describe the assumptions to clarify under what conditions targeting may be a reasonable thing to do.

Say that you have some TVs to sell. And say that you could show an ad about the TVs to everyone in the city for free. Your goal is to sell as many TVs as possible. Does it make sense for you to build a model to pick out people who would be especially likely to buy the TV and only show an ad to them? No, it doesn’t. Unless ads make people less likely to purchase TVs, you are always better-off reaching out to everyone.

But what if you are limited to only one ad? What would you do? In that case, a model may make sense. Let’s see how things may look with some fake data. Let’s compare the outcomes of four strategies: two model-based targeting strategies and two target-everyone with one ad strategies. To make things easier, let’s assume that selling Mercedes nets ten units of profits and selling Honda nets five units of profit. Let’s also assume that people will only buy something if they see an ad for their preferred product.

## The Value of Predicting Bad Things

30 Oct

Foreknowledge of bad things is useful because it gives us an opportunity to a. prevent it, and b. plan for it.

Let’s refine our intuitions with a couple of concrete examples.

Many companies work super hard to predict customer ‘churn’—which customer is not going to use a product over a specific period (which can be the entire lifetime). If you know who is going to churn in advance, you can: a. work to prevent it, b. make better investment decisions based on expected cash flow, and c. make better resource allocation decisions.

Users “churn” because they don’t think the product is worth the price, which may be because a) they haven’t figured out a way to use the product optimally, b) a better product has come on the horizon, or c) their circumstances have changed. You can deal with this by sweetening the deal. You can prevent users from abandoning your product by offering them discounts. (It is useful to experiment to learn about the precise demand elasticity at various predicted levels of churn.) You can also give discounts is the form of offering some premium features free. Among people who don’t use the product much, you can run campaigns to help people use the product more effectively.

If you can predict cash-flow, you can optimally trade-off risk so that you always have cash at hand to pay your obligations. Churn can also help you with resource allocation. It can mean that you need to temporarily hire more customer success managers. Or it can mean that you need to lay off some people.

The second example is from patient care. If you could predict reasonably that someone will be seriously sick in a year’s time (and you can in many cases), you can use it to prioritize patient care, and again plan investment (if you were an insurance company) and resources (if you were a health services company).

Lastly, as is obvious, the earlier you can learn, the better you can plan. But generally, you need to trade-off between noise in prediction and headstart—things further away are harder to predict. The noise-headstart trade-off is something that should be done thoughtfully and amended based on data.

## Optimal Sequence in Which to Service Orders

27 Jul

What is the optimal order in which to service orders assuming a fixed budget?

Let’s assume that we have to service orders o_1,…,…o_n, with the n orders iterated by i. Let’s also assume that for each service order, we know how the costs change over time. For simplicity, let’s assume that time is discrete and portioned in units of days. If we service order o_i at time t, we expect the cost to be c_it. Each service order also has an expiration time, j, after which the order cannot be serviced. The cost at expiration time, j, is the cost of failure and denoted by c_ij.

The optimal sequence of servicing orders is determined by expected losses—service the order first where the expected loss is the greatest. This leaves us with the question of how to estimate expected loss at time t. To come up with an expectation, we need to sum over some probability distribution. For o_it, we need the probability, p_it, that we would service o_i at t+1 till j. And then, we need to multiply p_it with c_ij. So framed, the expected loss for order i at time t =
c_it – \Sigma_{t+1}_{j} p_it * c_it

However, determining p_it is not straightforward. New items are added to the queue at t+1. On the flip side, we also get to re-prioritize at t+1. The question is if we will get to the item o_i at t+1? (It means p_it is 0 or 1.) For that, we need to forecast the kinds of items in the queue tomorrow. One simplification is to assume that items in the queue today are the same that will be in the queue tomorrow. Then, it reduces to estimating the cost of punting each item again tomorrow, sorting based on the costs at t+1, and checking whether we will get to clear the item. (We can forgo the simplification by forecasting our queue tomorrow, and each day after that till j for each item, and calculating the costs.)

If the data are available, we can tack on clearing time per order and get a better answer to whether we will clear o_it at time t or not.

## Optimal Sequence in Which to Schedule Appointments

1 Jul

Say that you have a travel agency. Your job is to book rooms at hotels. Some hotels fill up more quickly than others, and you want to figure out which hotels to book at first so that your net booking rate is as high as it could be the staff you have.

The logic of prioritization is simple: prioritize those hotels where the expected loss if you don’t book now is the largest. The only thing we need to do is find a way to formalize the losses. Going straight to formalization is daunting. A toy example helps.

Imagine that there are two hotels Hotel A and Hotel B where if you call 2-days and 1-day in advance, the chances of successfully booking a room are .8 and .8, and .8 and .5 respectively. You can only make one call a day. So it is Hotel A or Hotel B. Also, assume that failing to book a room at Hotel A and Hotel B costs the same.

If you were making a decision 1-day out on which hotel to call to book, the smart thing would be to choose Hotel A. The probability of making a booking is larger. But ‘larger’ can be formalized in terms of losses. Day 0, the probability goes to 0. So you make .8 units of loss with Hotel A and .5 with Hotel B. So the potential loss from waiting is larger for Hotel A than Hotel B.

If you were asked to choose 2-days out, which one should you choose? In Hotel A, if you forgo 2-days out, your chances of successfully booking a room next day are .8. At Hotel B, the chances are .5. Let’s play out the two scenarios. If we choose to book at Hotel A 2-days out and Hotel B 1-day out, our expected batting average is (.8 + .5)/2. If we choose the opposite, our batting average is (.8 + .8)/2. It makes sense to choose the latter. Framed as expected losses, we go from .8 to .8 or 0 expected loss for Hotel A and .3 expected loss for Hotel B. So we should book Hotel B 2-days out.

Now that we have the intuition, let’s move to 3-days, 2-days, and 1-day out as that generalizes to k-days out nicely. To understand the logic, let’s first work out a 101 probability question. Say that you have two fair coins that you toss independently. What is the chance of getting at least one head? The potential options are HH, HT, TH, and TT. The chance is 3/4. Or 1 minus the chance of getting a TT (or two failures) or 1- .5*.5.

The 3-days out example is next. See below for the table. If you miss the chance of calling Hotel A 3-days out, the expected loss is the decline in success in booking 2-days or 1-day out. Assume that the probabilities 2-days out and 1-day our are independent and it becomes something similar to the example about coins. The probability of successfully booking 2-days and 1-days out is thus 1 – the probability of failure. Calculate expected losses for each and now you have a way to which Hotel to call on Day 3.

|       | 3-day | 2-day | 1-day |
|-------|-------|-------|-------|
| Hotel A | .9    | .9    | .4    |
| Hotel B | .9    | .9    | .9    |

In our example, the number for Hotel A and Hotel B come to 1 – (1/10)*(6/10) and 1 – (1/10)*(1/10) respectively. Based on that, we should call Hotel A 3-days out before we call Hotel B.

## Targeting 101

22 Jun

Targeting Economics

Say that there is a company that makes more than one product. And users of any one of its products don’t use all of its products. In effect, the company has a \textit{captive} audience. The company can run an ad in any of its products about the one or more other products that a user doesn’t use. Should it consider targeting—showing different (number of) ads to different users? There are five things to consider:

• Opportunity Cost: If the opportunity is limited, could the company make more profit by showing an ad about something else?
• The Cost of Showing an Ad to an Additional User: The cost of serving an ad; it is close to zero in the digital economy.
• The Cost of a Worse Product: As a result of seeing an irrelevant ad in the product, the user likes the product less. (The magnitude of the reduction depends on how disruptive the ad is and how irrelevant it is.) The company suffers in the end as its long-term profits are lower.
• Poisoning the Well: Showing an irrelevant ad means that people are more likely to skip whatever ad you present next. It reduces the company’s ability to pitch other products successfully.
• Profits: On the flip side of the ledger are expected profits. What are the expected profits from showing an ad? If you show a user an ad for a relevant product, they may not just buy and use the other product, but may also become less likely to switch from your stack. Further, they may even proselytize your product, netting you more users.

I formalize the problem here (pdf).

## Learning About [the] Loss (Function)

7 Nov

One of the things we often want to learn is the actual loss function people use for discounting ideological distance between self and a legislator. Often people try to learn the loss function using over actual distances. But if the aim is to learn the loss function, perceived distance rather than actual distance is better. It is so because perceived = what the voter believes to be true. People can then use the function to simulate out scenarios if perceptions = fact.