Thursday, August 20, 2009


This came from the Atlantic magazine. It's something actuaries have been fighting for years, but it's amazing how often unrelated correlations slip into financial and other models.

Every time you find yourself saying that there must be some causal relationship between two strongly correlated variables, you should go back and look at this graph:

As Atlantic Business contributor Derek Lowe, who contributed the graph, notes,

I've seen a lot shakier plots used to justify some sweeping conclusions, and if those were justified, well, then I'm forced to conclude that Mexican lemons have improved highway safety a great deal. The vitamin C, maybe? The fragrance? Bioflavanoids?

This is particularly tricky when you bring time into it, because things trend--as we get richer, we buy safer cars, get better emergency rooms, etc. We also import more lemons to make our chi-chi cocktails and lemon meringue pies. Overlay the two, and you've got a hell of a causal relationship.

But I expect that four years from now, we'll still be having the same conversations with proponents of "cancer clusters". What makes electric power lines cause cancer, but not the earth's vastly more powerful magnetic field? Well, maybe we don't know the mechanism exactly, but never you mind: just look at that bee-yoo-ti-ful correlation!

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