Causal Detection: Removing Noise to Make Better Decisions

The human brain creates patterns, ignores contradictory information, and fills in the blanks to produce an explanation when evidence does not exist [Kahneman 2011].

Why it matters: Critical decisions are often made without understanding the facts.

Zoom in: The world is made up of patterns, yet most people focus on the noise over the actual issues at play.

• Much of our professional expertise is based on assumptive fallacies passed down over generations.
• The movement of security prices, the motion of molecules, and the diffusion of heat all have similar mathematical properties, yet the professions that study these phenomena seldom compare notes [Mandelbrot 2008].

For Example: Before Estimand released our CR-2 platform for causal detection, we built a demo using real estate data. After showing it to professionals, the real estate investors in the room balked, “You don’t have housing inventories, that is the most important metric.” We included the housing inventories a few weeks later only to find no causal relationship between it and home prices.

The big picture: There is a lot of noise in the judgments of competent and well-trained professionals [Kahneman, et al. 2022].

• Education and experience…