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Statistics

A credit score cutoff for loans as a natural experiment

regression-discontinuitycausal-inferencecredit

A lender automatically approves small-business loans for applicants with a credit score of at least 620 and rejects everyone below. You want to know the effect of receiving the loan on whether the business survives two years later.

Explain how a regression discontinuity design answers this, why it is nearly random at the cutoff, the key assumption to check, and the limitation.

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