# Estimating the effect of a Member Rewards program

An example on how DoWhy can be used to estimate the effect of a subscription or a rewards program for customers.

Suppose that a website has a membership rewards program where customers receive additional benefits if they sign up. How do we know if the program is effective? Here the relevant causal question is: > What is the impact of offering the membership rewards program on total sales?

And the equivalent counterfactual question is, > If the current members had not signed up for the program, how much less would they have spent on the website?

In formal language, we are interested in the Average Treatment Effect on the Treated (ATT).

## I. Formulating the causal model

Suppose that the rewards program was introduced in January 2019. The outcome variable is the total spends at the end of the year. We have data on all monthly transactions of every user and on the time of signup for those who chose to signup for the rewards program. Here’s what the data looks like.

```
[1]:
```

```
# Creating some simulated data for our example example
import pandas as pd
import numpy as np
num_users = 10000
num_months = 12
signup_months = np.random.choice(np.arange(1, num_months), num_users) * np.random.randint(0,2, size=num_users)
df = pd.DataFrame({
'user_id': np.repeat(np.arange(num_users), num_months),
'signup_month': np.repeat(signup_months, num_months), # signup month == 0 means customer did not sign up
'month': np.tile(np.arange(1, num_months+1), num_users), # months are from 1 to 12
'spend': np.random.poisson(500, num_users*num_months) #np.random.beta(a=2, b=5, size=num_users * num_months)*1000 # centered at 500
})
# Assigning a treatment value based on the signup month
df["treatment"] = (1-(df["signup_month"]==0)).astype(bool)
# Simulating effect of month (monotonically increasing--customers buy the most in December)
df["spend"] = df["spend"] - df["month"]*10
# The treatment effect (simulating a simple treatment effect of 100)
after_signup = (df["signup_month"] < df["month"]) & (df["signup_month"] !=0)
df.loc[after_signup,"spend"] = df[after_signup]["spend"] + 100
df
```

```
[1]:
```

user_id | signup_month | month | spend | treatment | |
---|---|---|---|---|---|

0 | 0 | 2 | 1 | 514 | True |

1 | 0 | 2 | 2 | 456 | True |

2 | 0 | 2 | 3 | 572 | True |

3 | 0 | 2 | 4 | 555 | True |

4 | 0 | 2 | 5 | 542 | True |

... | ... | ... | ... | ... | ... |

119995 | 9999 | 0 | 8 | 455 | False |

119996 | 9999 | 0 | 9 | 399 | False |

119997 | 9999 | 0 | 10 | 411 | False |

119998 | 9999 | 0 | 11 | 339 | False |

119999 | 9999 | 0 | 12 | 375 | False |

120000 rows × 5 columns

### The importance of time

Time plays a crucial role in modeling this problem.

Rewards signup can affect the future transactions, but not those that happened before it. In fact, the transaction prior to the rewards signup can be assumed to cause the rewards signup decision. Therefore we can split up the variables for each user in terms of

Activity prior to the treatment (causes the treatment)

Activity after the treatment (is the outcome of applying treatment)

Of course, many important variables that affect signup and total spend are missing (e.g., the type of products bought, length of a user’s account, geography, etc.). So we’ll need a node denoting `Unobserved Confounders`

.

Below is the causal graph for a user who signed up in month `i=3`

. The analysis will be similar for any `i`

.

```
[2]:
```

```
import os, sys
sys.path.append(os.path.abspath("../../../"))
import dowhy
# Setting the signup month (for ease of analysis)
i = 6
```

```
[3]:
```

causal_graph = """digraph {
treatment[label="Program Signup in month i"];
pre_spends;
post_spends;
Z->treatment;
U[label="Unobserved Confounders"];
pre_spends -> treatment;
treatment->post_spends;
signup_month->post_spends; signup_month->pre_spends;
signup_month->treatment;
U->treatment; U->pre_spends; U->post_spends;
}"""
# Post-process the data based on the graph and the month of the treatment (signup)
df_i_signupmonth = df[df.signup_month.isin([0,i])].groupby(["user_id", "signup_month", "treatment"]).apply(
lambda x: pd.Series({'pre_spends': np.sum(np.where(x.month < i, x.spend,0))/np.sum(np.where(x.month<i, 1,0)),
'post_spends': np.sum(np.where(x.month > i, x.spend,0))/np.sum(np.where(x.month>i, 1,0)) })
).reset_index()
print(df_i_signupmonth)
model = dowhy.CausalModel(data=df_i_signupmonth,
graph=causal_graph.replace("\n", " "),
treatment="treatment",
outcome="post_spends")
model.view_model()
from IPython.display import Image, display
display(Image(filename="causal_model.png"))

```
INFO:dowhy.causal_model:Model to find the causal effect of treatment ['treatment'] on outcome ['post_spends']
```

```
user_id signup_month treatment pre_spends post_spends
0 1 0 False 477.2 421.666667
1 2 0 False 474.2 388.333333
2 3 0 False 465.2 398.500000
3 5 0 False 475.2 394.000000
4 6 0 False 492.8 398.500000
... ... ... ... ... ...
5454 9994 0 False 474.8 402.666667
5455 9995 6 True 484.8 526.333333
5456 9996 0 False 454.2 416.666667
5457 9998 0 False 472.0 406.500000
5458 9999 0 False 475.8 405.500000
[5459 rows x 5 columns]
```

More generally, we can include any activity data for the customer in the above graph. All prior- and post-activity data will occupy the same place (and have the same edges) as the Amount spent node (prior and post respectively).

## II. Identifying the causal effect

For the sake of this example, let us assume that unobserved confounding does not play a big part.

```
[4]:
```

```
identified_estimand = model.identify_effect(proceed_when_unidentifiable=True)
print(identified_estimand)
```

```
WARNING:dowhy.causal_identifier:If this is observed data (not from a randomized experiment), there might always be missing confounders. Causal effect cannot be identified perfectly.
INFO:dowhy.causal_identifier:Continuing by ignoring these unobserved confounders because proceed_when_unidentifiable flag is True.
INFO:dowhy.causal_identifier:Instrumental variables for treatment and outcome:['Z']
INFO:dowhy.causal_identifier:Frontdoor variables for treatment and outcome:[]
```

```
Estimand type: nonparametric-ate
### Estimand : 1
Estimand name: backdoor1 (Default)
Estimand expression:
d
────────────(Expectation(post_spends|signup_month,pre_spends))
d[treatment]
Estimand assumption 1, Unconfoundedness: If U→{treatment} and U→post_spends then P(post_spends|treatment,signup_month,pre_spends,U) = P(post_spends|treatment,signup_month,pre_spends)
### Estimand : 2
Estimand name: iv
Estimand expression:
Expectation(Derivative(post_spends, [Z])*Derivative([treatment], [Z])**(-1))
Estimand assumption 1, As-if-random: If U→→post_spends then ¬(U →→{Z})
Estimand assumption 2, Exclusion: If we remove {Z}→{treatment}, then ¬({Z}→post_spends)
### Estimand : 3
Estimand name: frontdoor
No such variable found!
```

Based on the graph, DoWhy determines that the signup month and amount spent in the pre-treatment months (`signup_month`

, `pre_spend`

) needs to be conditioned on.

## III. Estimating the effect

We now estimate the effect based on the backdoor estimand, setting the target units to “att”.

```
[5]:
```

```
estimate = model.estimate_effect(identified_estimand,
method_name="backdoor1.propensity_score_matching",
target_units="att")
print(estimate)
```

```
INFO:dowhy.causal_estimator:INFO: Using Propensity Score Matching Estimator
INFO:dowhy.causal_estimator:b: post_spends~treatment+signup_month+pre_spends
/home/amit/py-envs/env3.8/lib/python3.8/site-packages/sklearn/utils/validation.py:72: DataConversionWarning: A column-vector y was passed when a 1d array was expected. Please change the shape of y to (n_samples, ), for example using ravel().
return f(**kwargs)
```

```
*** Causal Estimate ***
## Identified estimand
Estimand type: nonparametric-ate
### Estimand : 1
Estimand name: backdoor1 (Default)
Estimand expression:
d
────────────(Expectation(post_spends|signup_month,pre_spends))
d[treatment]
Estimand assumption 1, Unconfoundedness: If U→{treatment} and U→post_spends then P(post_spends|treatment,signup_month,pre_spends,U) = P(post_spends|treatment,signup_month,pre_spends)
## Realized estimand
b: post_spends~treatment+signup_month+pre_spends
Target units: att
## Estimate
Mean value: 106.37473903966593
```

The analysis tells us the Average Treatment Effect on the Treated (ATT). That is, the average effect on total spend for the customers that signed up for the Rewards Program in month `i=3`

(compared to the case where they had not signed up). We can similarly calculate the effects for customers who signed up in any other month by changing the value of `i`

(line 2 above) and then rerunning the analysis.

Note that the estimation suffers from left and right-censoring. 1. **Left-censoring**: If a customer signs up in the first month, we do not have enough transaction history to match them to similar customers who did not sign up (and thus apply the backdoor identified estimand). 2. **Right-censoring**: If a customer signs up in the last month, we do not enough *future* (post-treatment) transactions to estimate the outcome after signup.

Thus, even if the effect of signup was the same across all months, the *estimated effects* may be different by month of signup, due to lack of data (and thus high variance in estimated pre-treatment or post-treatment transactions activity).

## IV. Refuting the estimate

We refute the estimate using the placebo treatment refuter. This refuter substitutes the treatment by an independent random variable and checks whether our estimate now goes to zero (it should!).

```
[6]:
```

```
refutation = model.refute_estimate(identified_estimand, estimate, method_name="placebo_treatment_refuter",
placebo_type="permute", num_simulations=2)
print(refutation)
```

```
INFO:dowhy.causal_refuters.placebo_treatment_refuter:Refutation over 2 simulated datasets of permute treatment
INFO:dowhy.causal_estimator:INFO: Using Propensity Score Matching Estimator
INFO:dowhy.causal_estimator:b: post_spends~placebo+signup_month+pre_spends
/home/amit/py-envs/env3.8/lib/python3.8/site-packages/sklearn/utils/validation.py:72: DataConversionWarning: A column-vector y was passed when a 1d array was expected. Please change the shape of y to (n_samples, ), for example using ravel().
return f(**kwargs)
INFO:dowhy.causal_estimator:INFO: Using Propensity Score Matching Estimator
INFO:dowhy.causal_estimator:b: post_spends~placebo+signup_month+pre_spends
/home/amit/py-envs/env3.8/lib/python3.8/site-packages/sklearn/utils/validation.py:72: DataConversionWarning: A column-vector y was passed when a 1d array was expected. Please change the shape of y to (n_samples, ), for example using ravel().
return f(**kwargs)
WARNING:dowhy.causal_refuters.placebo_treatment_refuter:We assume a Normal Distribution as the sample has less than 100 examples.
Note: The underlying distribution may not be Normal. We assume that it approaches normal with the increase in sample size.
```

```
Refute: Use a Placebo Treatment
Estimated effect:106.37473903966593
New effect:-0.8756089074460676
p value:0.0
```