Counterfactual Evaluation

The fundamental problem of causal inference - that the counterfactual outcome for any individual is never observed - has shaped the entire methodology of the field. Every existing approach substitutes assumptions for missing data: ignorability, parallel trends, exclusion restrictions. None produces the counterfactual itself. This paper proposes the Digital Twin Counterfactual Framework (DTCF): rather than estimating the counterfactual statistically, we simulate it using a digital twin and subject the simulation to a hierarchical validation regime. We formalize the digital twin simulator as a stochastic mapping within the potential outcomes framework and introduce a hierarchy of twin fidelity assumptions - from marginal fidelity through joint fidelity to structural fidelity - each unlocking a progressively richer class of estimands. The central contribution is threefold. First, a five-level validation architecture converts the unfalsifiable claim that the simulator produces correct counterfactuals into falsifiable tests against observable data. Second, a formal decomposition separates causal quantities into those that are marginally validated (ATE, CATE, QTE - testable through observable-arm comparison) and those that are copula-dependent (the ITE distribution, probability of benefit/harm, variance of treatment effects - permanently reliant on the unobservable within-individual dependence structure). Third, bounding, sensitivity, and uncertainty quantification tools make the copula dependence explicit. The DTCF does not resolve the fundamental problem of causal inference. What it provides is a framework in which marginal causal claims become increasingly testable, joint causal claims become explicitly assumption-indexed, and the gap between the two is formally characterized.

Counterfactual explanations emerge as a powerful approach in explainable AI, providing what-if scenarios that reveal how minimal changes to an input time series can alter the model's prediction. This work presents a survey of recent algorithms for counterfactual explanations for time series classification. We review state-of-the-art methods, spanning instance-based nearest-neighbor techniques, pattern-driven algorithms, gradient-based optimization, and generative models. For each, we discuss the underlying methodology, the models and classifiers they target, and the datasets on which they are evaluated. We highlight unique challenges in generating counterfactuals for temporal data, such as maintaining temporal coherence, plausibility, and actionable interpretability, which distinguish the temporal from tabular or image domains. We analyze the strengths and limitations of existing approaches and compare their effectiveness along key dimensions (validity, proximity, sparsity, plausibility, etc.). In addition, we implemented an open-source implementation library, Counterfactual Explanations for Time Series (CFTS), as a reference framework that includes many algorithms and evaluation metrics. We discuss this library's contributions in standardizing evaluation and enabling practical adoption of explainable time series techniques. Finally, based on the literature and identified gaps, we propose future research directions, including improved user-centered design, integration of domain knowledge, and counterfactuals for time series forecasting.

We evaluate Large Language Models (LLMs) in repeated game-theoretic settings to assess whether strategic performance reflects genuine reasoning or reliance on memorized patterns. We consider two canonical games, Prisoner's Dilemma (PD) and Rock-Paper-Scissors (RPS), upon which we introduce counterfactual variants that alter payoff structures and action labels, breaking familiar symmetries and dominance relations. Our multi-metric evaluation framework compares default and counterfactual instantiations, showcasing LLM limitations in incentive sensitivity, structural generalization and strategic reasoning within counterfactual environments.

Explainability is widely regarded as essential for trustworthy artificial intelligence systems. However, the metrics commonly used to evaluate counterfactual explanations are algorithmic evaluation metrics that are rarely validated against human judgments of explanation quality. This raises the question of whether such metrics meaningfully reflect user perceptions. We address this question through an empirical study that directly compares algorithmic evaluation metrics with human judgments across three datasets. Participants rated counterfactual explanations along multiple dimensions of perceived quality, which we relate to a comprehensive set of standard counterfactual metrics. We analyze both individual relationships and the extent to which combinations of metrics can predict human assessments. Our results show that correlations between algorithmic metrics and human ratings are generally weak and strongly dataset-dependent. Moreover, increasing the number of metrics used in predictive models does not lead to reliable improvements, indicating structural limitations in how current metrics capture criteria relevant for humans. Overall, our findings suggest that widely used counterfactual evaluation metrics fail to reflect key aspects of explanation quality as perceived by users, underscoring the need for more human-centered approaches to evaluating explainable artificial intelligence.

The promise of LLM-based user simulators to improve conversational AI is hindered by a critical "realism gap," leading to systems that are optimized for simulated interactions, but may fail to perform well in the real world. We introduce ConvApparel, a new dataset of human-AI conversations designed to address this gap. Its unique dual-agent data collection protocol -- using both "good" and "bad" recommenders -- enables counterfactual validation by capturing a wide spectrum of user experiences, enriched with first-person annotations of user satisfaction. We propose a comprehensive validation framework that combines statistical alignment, a human-likeness score, and counterfactual validation to test for generalization. Our experiments reveal a significant realism gap across all simulators. However, the framework also shows that data-driven simulators outperform a prompted baseline, particularly in counterfactual validation where they adapt more realistically to unseen behaviors, suggesting they embody more robust, if imperfect, user models.

A major challenge in data-driven decision-making is accurate policy evaluation---i.e., guaranteeing that a learned decision-making policy achieves the promised benefits. A popular strategy is model-based policy evaluation, which estimates a model from data to infer counterfactual outcomes. This strategy is known to produce unwarrantedly optimistic estimates of the true benefit due to the winner's curse. We searched the recent literature on data-driven decision-making, identifying a sample of 55 papers published in Management Science in the past decade; all but two relied on this flawed methodology. Several common justifications are provided: (1) the estimated models are accurate, stable, and well-calibrated, (2) the historical data uses random treatment assignment, (3) the model family is well-specified, and (4) the evaluation methodology uses sample splitting. Unfortunately, we show that no combination of these justifications avoids the winner's curse. First, we provide a theoretical analysis demonstrating that the winner's curse can cause large, spurious reported benefits even when all these justifications hold. Second, we perform a simulation study based on the recent and consequential data-driven refugee matching problem. We construct a synthetic refugee matching environment (calibrated to closely match the real setting) but designed so that no assignment policy can improve expected employment compared to random assignment. Model-based methods report large, stable gains of around 60% even when the true effect is zero; these gains are on par with improvements of 22-75% reported in the literature. Our results provide strong evidence against model-based evaluation.

We study operator relevance in data-driven partial differential equation (PDE) discovery. Sparse residual methods can select terms that improve residual fit, but residual contribution is not the same as functional necessity. We formalize this distinction through counterfactual operator interventions, where a candidate term is deleted or perturbed and the factual and intervened trajectories, or observables, are compared. The resulting theory gives six reusable results. A residual--counterfactual gap theorem shows that deletion effects are governed by the inverse linearized PDE map, not by residual magnitude alone. A certified decision theorem gives error margins for relevance, irrelevance, and abstention under neural or numerical surrogate error. An aliasing theorem characterizes experiment-dependent non-identifiability through the null space of the operator-evaluation design. A constraint-manifold theorem shows that operators vanishing on invariant constraint classes cannot be identified from trajectories restricted to those classes. A pruning-consistency theorem proves that sparse screening followed by counterfactual deletion recovers the functionally relevant support under a recall and margin condition. An observable-level adjoint theorem extends relevance testing from full-state deviations to scientific quantities of interest. Validation experiments test these mechanisms on synthetic PDEs with known support and on public geophysical fields from atmospheric reanalysis and NOAA OISST. The real-data results are reported as operator-surrogate diagnostics, not as unconditional recovery of physical laws. The framework provides a rigorous diagnostic layer for distinguishing residual usefulness from counterfactual operator relevance within a specified library, experiment class, norm, and tolerance.