statistical-analysis-correlation-is-not-causation

name	statistical-analysis-correlation-is-not-causation
description	Sub-skill of statistical-analysis: Correlation Is Not Causation (+5).
version	1.0.0
category	data-analytics
type	reference
scripts_exempt	true

Correlation Is Not Causation (+5)

Correlation Is Not Causation

When you find a correlation, explicitly consider:

• Reverse causation: Maybe B causes A, not A causes B
• Confounding variables: Maybe C causes both A and B
• Coincidence: With enough variables, spurious correlations are inevitable

What you can say: "Users who use feature X have 30% higher retention" What you cannot say without more evidence: "Feature X causes 30% higher retention"

Multiple Comparisons Problem

When you test many hypotheses, some will be "significant" by chance:

• Testing 20 metrics at p=0.05 means ~1 will be falsely significant
• If you looked at many segments before finding one that's different, note that
• Adjust for multiple comparisons with Bonferroni correction (divide alpha by number of tests) or report how many tests were run

Simpson's Paradox

A trend in aggregated data can reverse when data is segmented:

• Always check whether the conclusion holds across key segments
• Example: Overall conversion goes up, but conversion goes down in every segment -- because the mix shifted toward a higher-converting segment

Survivorship Bias

You can only analyze entities that "survived" to be in your dataset:

• Analyzing active users ignores those who churned
• Analyzing successful companies ignores those that failed
• Always ask: "Who is missing from this dataset, and would their inclusion change the conclusion?"

Ecological Fallacy

Aggregate trends may not apply to individuals:

• "Countries with higher X have higher Y" does NOT mean "individuals with higher X have higher Y"
• Be careful about applying group-level findings to individual cases

Anchoring on Specific Numbers

Be wary of false precision:

• "Churn will be 4.73% next quarter" implies more certainty than is warranted
• Prefer ranges: "We expect churn between 4-6% based on historical patterns"
• Round appropriately: "About 5%" is often more honest than "4.73%"