 Solution

True state dependence, also called true contagion, means that a previous outcome changes the distribution of a subsequent outcome after controlling both measured covariates and persistent unobserved heterogeneity. For example, an earlier successful week may make later success more likely through habit formation. A lagged-outcome coefficient in an inadequate statistical model can also reflect omitted subject differences, so positive observed persistence alone does not distinguish true state dependence from unobserved heterogeneity.