Seeing, doing, and imagining

strategy+business, March 16, 2021

by Theodore Kinni


Photograph by Laurence Dutton

My vote for the foggiest assertion of the pandemic to date is that the U.S. has an abysmally high number of COVID-19 cases — more than 29 million as of March 8, 2021 — because of testing. “If you don’t test, you don’t have any cases,” former President Donald Trump said during a televised White House roundtable on June 15, 2020. “If we stopped testing right now, we’d have very few cases, if any.” I wonder how many people who heard that had the same first thought as I did: Correlation is not causation.

Though associations gleaned from big data drive recommendation engines and bolster corporate revenues, they have their limitations. Imagine trying to control a viral pandemic by refusing to test people for the virus.This isn’t to say that correlation — the idea that two or more things are associated in some way — isn’t valuable. Indeed, there is big money in correlation. In order to peddle subscriptions, Pandora doesn’t need to know what causes people who listen to The Grateful Dead to also listen to Phish. To bulk up its sales, Amazon doesn’t need to know what causes people who buy a Paleo diet book to also buy beef jerky.

The passive observation of data has limited value, because, as Judea Pearl reminds readers several times in The Book of Why: The New Science of Cause and Effect, data is profoundly dumb. “Data can tell you that the people who took a medicine recovered faster than those who did not take it, but they can’t tell you why,” writes the director of UCLA’s Cognitive Systems Lab. “Maybe those who took the medicine did so because they could afford it and would have recovered just as fast without it.”

Association, which Pearl, a Turing Award winner, identifies as the first of three steps on his ladder of causation, won’t help executives answer many of the questions they need to ask when formulating corporate strategy, making investment decisions, or setting prices. To answer questions such as, “What will raising prices by 10 percent do to revenues?” you need to start climbing Pearl’s ladder. Read the rest here.