Lisa Simpson Gets Why Correlation Does Not Imply Causation
In the Simpson's episode Much Apu About Nothing, Ned Flanders spots a bear on the street, which prompts the whole town to crusade against bears and to create a Bear Patrol.
Homer: Not a bear in sight. The Bear Patrol must be working like a charm.
Lisa: That’s specious reasoning, Dad.
Homer: Thank you, dear.
Lisa: By your logic I could claim that this rock keeps tigers away.
Homer: Oh, how does it work?
Lisa: It doesn’t work.
Lisa: It’s just a stupid rock.
Lisa: But I don’t see any tigers around, do you?
[Homer thinks of this, then pulls out some money]
Homer: Lisa, I want to buy your rock.
[Lisa refuses at first, then takes the exchange]
This concept has practical applications to online business:
During US presidential election years, the stock market tends to benefit, especially when the incumbent party wins. The S&P has risen in 12 of the last 16 election years.
But correlation does not imply causation. The market declined in 2 of the past 3 election years. It would be foolish to have based your investment strategy 12 years ago solely on the basis of an election year, without considering the influence of the current economy, interest rates and corporate earnings. Similarly, it would be unwise to plan your holiday inventory or sales targets in the same way.
Some believe multi-channel shoppers are the best shoppers because they tend to spend more than single-channel shoppers. Those who shop in-store and online may spend more, but this does not mean that converting single-channel customers to multi-channel buyers will pad your bottom line. Today's alternative channels (like mobile apps and social networks) may merely be giving your already best customers more ways to shop. And they may be the ones who are most interested in using your store on the go.
In fact, trying to change in-store shoppers into online shoppers can result in less in-store shopping which results in the closing of brick and mortar stores, and the loss of a segment that would never shop online.
Or consider a software company that offers companion CDs alongside digital downloads. Customers who opt for the backup CD may be half as likely to request a refund than download-only customers.
So, push more customers to buy the CD and shoot the guy who's calling for removing physical CD options to save production, warehousing and shipping costs, right? Not so fast. If customers have to send back CDs and wait for their refund, they may be less likely to bother. They're not more satisfied because they have a CD.
You get the picture.
But if you want more pictures, here are two more helpful graphics to hammer this point home.