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Correlation and Causation: Tiger Woods, Facebook and Other indicators

Mar 31, 2013 • Behavioral Economics, Economic Debates, Economic Growth, Economic Humor, Macroeconomic Measurement • 180 Views    No Comments

Sometimes, correlation just won’t take us to causation…

The Dow and Tiger Woods:

  • The highs and lows of the Dow Industrial Average have paralleled the rise, fall and rise again of Tiger Woods’s career. If you continue this graph, to now, both lines rise.
From Harvard Business review Blog Network

From Harvard Business Review Blog Network

The GDP and skirt lengths:

  • One study that looked at the economy and skirt lengths between 1921 and 2009 found that when economic activity fell, 3 or 4 years later, so too would skirt lengths; if the GDP went up, then again, it took 3 or four years for hemlines to follow.

Greek bond yields and Facebook:

From Bloomberg

From Bloomberg

Stock indices and skyscrapers:

  • In certain developing nations, there appears to be a parallel between building the world’s tallest building and subsequent stock market declines. In Malaysia, the Kuala Lumpur Stock Index slumped after the 1998 completion of the Petronas Twin Towers (452 meters; 1482 feet). In Taiwan, the TAIEX Index slid when their Taipe 101 (509.2 meters; 1671 feet) was completed. After construction began of Burj Khalifa (829.8 meters; 2722 feet), in the United Arab Emirates, their Dubai Financial Markets Index plunged.

Our bottom Line? Economic causation is tough to prove. For the 1930s depression, no one can create a control group to prove that the Keynesians or monetarists are right or wrong. And now, we cannot prove with scientific certainty whether austerity or stimulus is the right medicine for sluggish debt-laden economies.

A note: The subtitle of an article in today’s NY Times Magazine is, “What Swedish babies and the Stone Age can teach us about life expectancy and income inequality.” The author states causation. Maybe though, correlation? Your opinion?

Sources and Resources: Having read a WSJ article on the Dow and Tiger Woods, I discovered a Harvard Business Review blog that predated it and was the source of my graph; I do recommend reading it. For skirt lengths, I returned to econlife, here, while a wonderful Bloomberg article was the source of my Facebook/Greek bond graph. Finally, although this paper had debatable conclusions, it was a handy source of facts as were Yahoo Finance and Business Insider for historical markets data.

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