Tuesday, June 12, 2007

A huge problem with econometrics

They apparently confuse various forms of correlation with causation. Witness this definition of causality given in a report about tort law.

"Wiener-Granger or Granger deļ¬nition of causality.…It can be formulated in a simplified way as follows: Definition: x is a Granger cause of y (denoted as x-y), if present y can be predicted with better accuracy by using past values of x rather than by not doing so, other information being identical”

Unfortunately, that's correlation, not causality. Causality is when a firm statistical correlation is obtained, a reason to believe x causes y is established, and reason to exclude alternative hypotheses is established. Wiener-Granger only establishes the first.

So be careful when someone tells you that something is "statistically proven"--remember Disraeli's "Lies, Damned Lies, and Statistics."

Also take a look at the premise of the paper I linked; they admit that tort law imposes a 2.2% "tax" on all of us here, and then they deny that having 2.2% less to spend has any effect on hiring, or elsewhere in the economy. I suggest that those of us who have a "budget" know better.

It seems that our world has a lot of people who are tremendously skilled with various technical tools, but have failed to learn the basic discipline of logic.

8 comments:

Shawn said...

this guy? hasn't learned logic. has gotten as far as he has by reading a lot and forming sentences well. Perhaps rhetorically sound, but not logically.

Bike Bubba said...

Yup, it's a bitter irony that somehow those who did the study were able to learn their math (historically a major method for teaching logic) without learning logic, apparently.

Shawn said...

...well, i'm actually saying that *i* haven't learned logic. :)

the 'this guy' is referencing 'shawn'.

so i'm agreeing that it's very possible (sadly) to get through w/o logic.

Mark said...

Bert, are you saying that lawyers don't hire people? That they don't spend money, hence putting it back into the economy and maintaining the "multiplier effect?" ;^)

Wouldn't you rather have the lawyers get the $s than the gov't?

Bike Bubba said...

Mark-- :^). Yes, I'd rather have lawyers get the money than the government, but no, I'd actually rather have people producing something useful rather than handing those same resources to a lawyer.

Put differently, if it's all the same to you, I'd rather spend my 2.2% or whatever on a new stove and siding for my house than to pay a lawyer the same amount to file legal briefs. Maybe I'm weird that way.

Shawn said...

...weighing in tentatively:

aren't the lawyers getting the $ because the judicial branch of the government has made crap decisions in the past, thereby allowing individuals to fill their pockets at the expense of their fellow citizens, stopping to give a few bucks to the lawyer on the way.

nothin' wrong with lawyers...but the system's made a higher demand than necessary.

Shawn said...

sorry...that first paragraph should have a question mark at the end.

Bike Bubba said...

Shawn, exactly right. The very premise of someone "practicing law" for a living implies that the laws written by Congress (and usurped by bureaucrats) are often too difficult for the common man to apply in his own life.

Nothing against those who help us with this, but I'd love to see Congress sober up and think about the results of what they do.