Causation

I pulled out of my grab bag a thing on causation. Turns out I already blogged on it. Here's waht I said last August.

"Causation" in real life is different than in statistical life. In real life, "A" is said to cause "B" if "A" would not have happened if "B" had not happened first. A man gets drunk and gets behind the wheel of a car and runs over a man killing him. The accident is said to have "caused" the death of the man.

In statistical life, "causation" means "correlation" or "prediction." "A" predicts "B", or "causes" "B" if knowing "A" helps us reduce the uncertainty that we have about "B". For example, increasing age in a global sense is related to increased wealth.

Not all wealthy people are old and not all old people are wealth. But in society in general, you get wealthier as you get old. Therefore age "predicts" and "causes" wealth. If you don't work and invest well as you age you won't be wealthy.

As entrepreneurs we need to know about causation in both senses. We need to know the effects of what we do as business leaders and starters. We need to know that if we don't devise a partnership agreement we can have all kinds of problems. We need to know that if we are mean to our employees and don't respect them they will leave and it will be hard to replace them and our business will suffer.

We also know that our success is caused by generating cash. And we need to know the cash drivers and how they "cause" our success.

We need to know both kinds of causation.

Tell me what you think.