Birds from seeds, Stocks from coke bottle- Finding patterns in the wrong places

As a child, I used to think birds came from bird seeds, and hence the name. One night, to prove it to my parents, I put a lump of pearl millet (which we usually used to feed birds) and poured some water over it. When I woke up the next day, there were a few little birds around. I was proud I proved my point.

?Hasn’t it happened to you? Your day went dismal because you sneezed in the doorway, and now you think sneezing in the doorway is a bad omen. Human brains are wired to look for connections- between images, between people, between events. Many times, at places where they don’t exist in the first place. This fallacy is commonly known as ‘Causation- Co-relation bias’. Fancy alliteration. What it simply means is even if two events are related, however strongly, one cannot always be said to cause another. As I said before, human brains are wired to find connections- mainly because it forms a complete picture for our brain to process. Our brain doesn’t like an incomplete picture, and hence we try to fill in gaps. Sometimes it’s harmless- it wouldn’t kill for someone to not sneeze in the doorway. More often than not, it can have huge implications.?

?Let me give you an example. In this article in?Forbes, business professor Nuno Fernandes points out how many people and business publications had a roll declaring that Ronaldo moving a beverage bottle wiped $4 billion off the company’s value. It's true that these two events happened around the same time. But are they exclusively related? Maybe not. Here are some non-alternative facts that can explain the drop in values:

• Coca-Cola's 4.3 billion shares closed on Friday, June 11, with a share price of $56.16 for a market value of $242 billion.
• On Monday, June 14, at 9:40 a.m. EST, its stock price was $55.26 (down 1.6%) and the market value had dipped to $238 billion, $4 billion lower than the prior day.
• Cristiano Ronaldo moves the Coca-Cola bottles at 9.43 a.m. EST, and says “água”. It must've taken at least an hour for a sizable amount of people around the world to come to know about this and make a business decision.
• Also, on June 14, Coca-Cola shares became ex-dividend. Of course, on the day that stocks cease to carry dividend rights, share prices adjust mechanically to a lower number. In this case, the ex-dividend date happened to coincide with Ronaldo’s conference call.

?Surprised?! Well, we need to realize that we live in a world that is constantly influenced by data that might not necessarily be a complete truth. We are too lazy to research for ourselves and make our opinions based on others. And unfortunately and surprisingly, a large number of important decisions are being made using cherry-picked data or faulty causation-co-relation.?

How to tackle Causation-Co-relation bias? Well, whenever you come across a cause and effect relationship that states A causes B, think about the following things-

1. Is it logically right to connect A and B in the first place?
2. Can it be that B causes A?
3. Can there be something C that is causing B and not A
4. Does B always happen when A happens? Is there a case when B happend but A didn't or A did, but B didn't?
5. Are the statistics that are connecting B and A unbiased and representative of the set?

In the bird seed case, it was clearly the point 1 at play. In the Coco cola case, point 3 was probably what happened. Case 1 is easier to discredit. If someone says that murder rates and ice-cream sales are co-related and hence rising ice cream sales cause more murders, you know it is balderdash. But the other cases are difficult to discredit. But don't let them fool you. Think critically and you'll be able to see right through rubbish co-relations.

Do you think more articles on critical thinking, how to practically handle biases and how to really understand statistics would be useful? Let me know in the comments.

?

?

?