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Nobel awarded for inferring causality

Summary:
This year's Nobel prize in econ goes to three economists who developed methodologies for identifying correlation from causality.  We have blogged extensively about why causality is important to business and how to design experiments or analyses to identify it.  In particular, use the web app to teach regression to understand the two mistakes you can make:  Type I (mistakenly inferring causality) and Type II (mistakenly inferring no causality) errors occur.  Try the learning exercises in this paper: A Simple Way to Teach RegressionVanderbilt Owen Graduate School of Management Research Paper15 Pages Posted: 10 Jan 2020 Last revised: 5 Aug 2021Luke M. FroebVanderbilt University - Owen Graduate School of ManagementDate Written: August 05, 2021AbstractThis paper introduces a simple free web

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This year's Nobel prize in econ goes to three economists who developed methodologies for identifying correlation from causality.  

We have blogged extensively about why causality is important to business and how to design experiments or analyses to identify it.  In particular, use the web app to teach regression to understand the two mistakes you can make:  Type I (mistakenly inferring causality) and Type II (mistakenly inferring no causality) errors occur.  Try the learning exercises in this paper:

 A Simple Way to Teach Regression

15 Pages Posted: 10 Jan 2020 Last revised: 5 Aug 2021

Luke M. Froeb

Vanderbilt University - Owen Graduate School of Management

Date Written: August 05, 2021

Abstract

This paper introduces a simple free web app that can teach regression to anyone who can point and click. Originally designed to teach Justice Department attorneys enough about regression so that they could cross examine rival experts, the app ``inverts'' the usual pedagogy: instead of showing users how to run regressions on data, it asks them to click on a graph to ``create'' data to achieve a given outcome, like a statistically significant line. Successful completion of each task is rewarded with immediate feedback that reveals the principle behind the exercise. This paper describes short, intuitive exercises to teach: (i) hypothesis testing, statistical significance and confidence intervals, (ii) the difference between correlation and causality, and (iii) how to diagnose functional form mis-specification. These exercises can be completed in just a few minutes.

Keywords: Teaching Regression; statistical significance; correlation vs. causality

JEL Classification: A2 (Economic Education)

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