Subject Rational Expectations Will Contaminate Randomized Controlled Medical Trials

Gilles Chemla and Christopher Hennessy

No 11360, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We develop a rational expectations model of placebo effects. If subjects in seemingly-ideal single-stage RCTs form rational beliefs about breakthroughs based upon personal physiological responses, mental effects differ across medications received, treatment versus control. Consequently, the average cross-arm health difference becomes a biased estimator of the mean non-placebo physiological effect. Constructively, we show: bias can be altered through choice of control; high-efficacy controls mitigate upward bias; and unbalanced panels may be preferred since bias approaches zero as treatment probability approaches zero. Consistent with experimental evidence, our theory implies outcomes within-arm and cross-arm differences can be non-monotone in treatment probability.

Keywords: Rational expectations; Rcts; Bias (search for similar items in EconPapers)
JEL-codes: C10 C90 D04 I11 K32 O3 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-exp, nep-ger and nep-hea
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