Conditional Balance Tests: Increasing Sensitivity and Specificity With Prognostic Covariates

Clara Bicalho, Adam Bouyamourn and Thad Dunning

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Abstract: Researchers often use covariate balance tests to assess whether a treatment variable is assigned "as-if" at random. However, standard tests may shed no light on a key condition for causal inference: the independence of treatment assignment and potential outcomes. We focus on a key factor that affects the sensitivity and specificity of balance tests: the extent to which covariates are prognostic, that is, predictive of potential outcomes. We propose a "conditional balance test" based on the weighted sum of covariate differences of means, where the weights are coefficients from a standardized regression of observed outcomes on covariates. Our theory and simulations show that this approach increases power relative to other global tests when potential outcomes are imbalanced, while limiting spurious rejections due to imbalance on irrelevant covariates.

Date: 2022-05
New Economics Papers: this item is included in nep-ecm
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