Correlation vs causation

Indian Economy glossary

Topic: Economic Data: Census, NSS, Surveys and Statistical Tools · NCERT: Class 11, Ch 6 "Correlation"

Meaning

Correlation only shows that two variables move together in a definite way. It never proves that one causes the other. A link can be spurious (false) for three reasons:

  • pure coincidence;
  • a hidden third variable that drives both;
  • timing and other factors that confuse the picture.

Policy needs causal evidence. That comes from methods such as randomised controlled trials (RCTs), recognised by the 2019 Nobel Prize (Banerjee, Duflo, Kremer), and natural experiments (2021 Nobel: Card; Angrist and Imbens).

Example

Ice-cream sales and drownings rise together. Ice-cream does not cause drowning. Hot weather drives both. Similarly, deaths may rise in villages where more doctors are sent during an epidemic. The doctors are not the cause: the cases were already terminal, and the benefit comes later.

Don't confuse with

  • Correlation: this is the measure of how two variables move together. Causation is a separate claim, that one variable brings about change in the other. Correlation alone cannot establish it.

Related concepts

Read more