Statistics · medium

What is the difference between correlation and causation, and how do you get closer to causation without an experiment?

Asked in Data Analyst interviews, in the Statistics round.

Short answer

Correlation is co-movement, causation needs a counterfactual. Without a randomized test you approximate one with a natural experiment, difference in differences, regression discontinuity, matching or instrumental variables, each with assumptions you must state.

CorrelationCausation
ClaimsThese move togetherChanging this changes that
EvidenceThe observed data aloneAn intervention, or an assumption you defend
Broken byA confounder, selection, reverse causalityNot applicable once randomized
Best evidenceA scatter plotA randomized experiment
Without an experimentNot enough on its ownDiff-in-diff, instruments, regression discontinuity, matching
Correlation is a pattern in the data. Causation is a claim about intervening.

How to answer it

Definition

Correlation is a pattern in observed data: two things move together. Causation is a claim about intervening: change this and that changes. The table above compares them; the useful half of this question is the second part.

Why correlation is not enough

Getting closer without an experiment

Difference-in-differences   a comparison group that moved in parallel before
                            the change, so the difference in their trends
                            after it estimates the effect

Instrumental variables      something that shifts treatment but has no other
                            route to the outcome

Regression discontinuity    a cutoff rule where those just above and just
                            below are otherwise alike

Matching / propensity       compare treated units to controls that look the
                            same on observed covariates

Fixed effects / panel       each unit acts as its own control over time

The honest caveat

Every one of these buys credibility with an assumption, not with data. Matching only balances what you MEASURED, so an unobserved confounder survives it untouched. Difference-in-differences needs parallel trends, which pre-period data can support but never prove. Say which assumption you are leaning on, and how you would probe it.

Key points

FAQ

The 30-second answer

Correlation says two things move together in the data I have. Causation says that if I intervene on one, the other changes. The gap between them is usually a confounder, reverse causality, or selection.
Without an experiment I would reach for a quasi-experimental design. Difference-in-differences if I have a comparison group that trended in parallel beforehand, regression discontinuity if there is a cutoff rule, instrumental variables if something shifts treatment with no other route to the outcome, or matching on observed covariates.
The thing I would be honest about is that each of those buys credibility with an assumption rather than with data. Matching only balances what I measured, so an unobserved confounder walks straight through it. I would name the assumption and say how I would test it.

In the interview

Practice this for real