## Causality Techniques in Investment Management >Throughout the history of science, causality is among the fundamental research questions and the [ultimate objective for many studies](https://www.researchgate.net/publication/318843418_Big_Data_and_Causality). Some of these studies try to make predictions about the future. But anticipating or predicting consequences is only one aspect of causality. Indeed, in describing empirically based causal theories, [Michael Joffe confirms that economic theory prioritizes prediction](https://www.tandfonline.com/doi/full/10.1080/23322039.2017.1280983), while the natural sciences primarily aim to show how the world works. >Even if all past data were accessible and we understood and interpreted it correctly, we cannot guarantee that we would act on it appropriately. The statistics and econometrics literature on causality focuses instead on forward causal questions or “effects of causes.” That is, what happens when, or what if . . . It does not focus on [reverse causal inference or the “causes of effects” — that is, why does this happen](https://www.nber.org/papers/w19614) — with the latter often inspiring the former. Why do we mistake correlation for causation? 1. Representation Bias 2. Confirmation Bias 3. Illusion of Control Bias **Case Studies:** - [[CHG Issue 177 Patternicity]] - [[CHG Issue 169 The Morality of Black-Scholes]] - [[CHG Issue 116 Mean Reversion]] - [[CHG Issue 99 Financial Innovation]] - [[CHG Issue 56 Bayes Theorem]] Explore Further: [CFA Institute: Causality Techniques in Investment Management](https://blogs.cfainstitute.org/investor/2022/03/16/causality-techniques-in-investment-management-five-key-findings/#) | [[Simpson's Paradox]] | [[Thinking Fast and Slow]] Tags: #seeds Your support for Cedars Hill Group is greatly appreciated <form action="https://www.paypal.com/donate" method="post" target="_top"> <input type="hidden" name="hosted_button_id" value="74PGN8ZXHQVHS" /> <input type="image" src="https://www.paypalobjects.com/en_US/i/btn/btn_donate_LG.gif" border="0" name="submit" title="PayPal - The safer, easier way to pay online!" alt="Donate with PayPal button" /> <img alt="" border="0" src="https://www.paypal.com/en_US/i/scr/pixel.gif" width="1" height="1" /> </form>