Difference in Differences

“It does not merely compare two groups; it compares how the gap between them changed.”

01 / PLAINLY

What it means, plainly

Difference in differences calculates the treated group's change and subtracts the comparison group's change. The result summarizes how much the gap between them shifted.

02 / CONTEXT

A little more

The method subtracts the comparison group's time change from the treated group's change. Causal interpretation usually relies on plausible parallel trends and no relevant differential shocks.

03 / WHY IT MATTERS

Why it matters

It can separate a general change over time from the treated group's additional change, but only under assumptions that need examination.

04 / EXAMPLE

A familiar example

Sales rise 8 points where a rule changed and 3 where it did not; the estimated difference-in-differences is 5 points.

05 / LIMIT

What it does not mean

Before-and-after data do not prove parallel trends or eliminate anticipation and composition effects.

06 / NOTICE

Notice it in your day

Use the example of 8 and 3 points: compute the double difference, then name a simultaneous event that could make the subtraction misleading.

FINAL NOTE

The idea worth keeping

Inspect prior trajectories and concurrent events, not only the final subtraction.

QUESTIONS / 02

Questions people still have

What subtraction does the method perform?

It subtracts the comparison group's time change from the treated group's change.

Which assumption often supports a causal reading?

Plausible parallel trends with no relevant differential shocks.