Correlation versus Causation
Two series moving together says nothing about which moves the other, or whether a third thing moves both. Backtests, factor discoveries and management explanations all trade on the confusion. The corrective is to name the mechanism and specify what you would observe if the causal story were false.
10 books · 4 resources
Start here
- How to Lie with StatisticsDarrell Huff, 1954
- Naked StatisticsCharles Wheelan, 2013
- The Book of WhyJudea Pearl, Dana Mackenzie, 2018
Resources 4
- Proximate vs Root CausesShane Parrish · essay · Correlated symptoms are not the cause you need.
- How to Spot Bad ScienceShane Parrish · essay · A checklist for claims that will not replicate.
- Deductive vs Inductive ReasoningShane Parrish · essay · What each kind of inference can and cannot prove.
- Pattern Recognition: Opportunities and LimitsMichael J. Mauboussin · paper · Where patterns are signal and where they are noise.
Books 10
Judea Pearl, Dana Mackenzie · 2018
Judith Rich Harris · 1998 · Challenges the evidence that parenting shapes adult outcomes
Peter Kennedy · 1998 · The plain-language companion to econometric method and its pitfalls
John Allen Paulos · 2003 · A mathematician's own losses used to explain market probability errors
Jon Elster · 2007 · Elster on mechanisms rather than laws in the social sciences
David A. Freedman · 2009 · Freedman on regression's assumptions and the causal claims it cannot support