Causal Reasoning and Performance

Arnaldo Camuffo, Alfonso Gambardella and Diego Jannace

No 20300, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: While causal reasoning underpins econometric theory, its practical impact on decision performance remains largely untested. We develop a dynamic model of decision†making under uncertainty, showing that causal theories raise economic performance. We provide the first large†scale empirical evidence of this phenomenon by conducting eight field randomized controlled trials with 1,556 early†stage startups across eight countries, comparing theory†and†evidence†based training to evidence†only and control conditions. We estimate that theory†trained entrepreneurs achieve 1.7 times higher cumulative sales growth and employee productivity relative to both counterfactual groups. Instrumental†variable estimates confirm that theory-based causality drives these gains, whereas pure experimentation offers no significant short†term benefits. Our findings establish causal reasoning as a critical determinant of economic performance and advocate embedding causal theorizing alongside experimentation in decision†making.

JEL-codes: L21 L26 M13 M21 (search for similar items in EconPapers)
Date: 2025-05
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