The Origins of Graphical Causal Models

Here is an interesting bit of intellectual history. In his 2000 book “Causality”, Judea Pearl describes how he got to the initial idea that sparked the development of causal inference based on directed acyclic graphs.pearl_causality_ch3

As you can see, the idea of thinking about interventions in quasi-deterministic systems is strongly rooted in econometrics (so no need for the not-invented-here-syndrome). In a sense, this story is also typical for the modern literature on machine learning, where smart computer scientists discover (some say “reinvent”, but that’s too disparaging for my taste) approaches from statistics and econometrics and take them to the next level. Because of his prior, Turing-award-worthy work on Bayesian networks, Pearl was able adapt the idea of structural causal models and equip it with a powerful symbolic language that allows us to solve problems far beyond what has been possible with traditional econometric techniques. Clearly, we have much to learn from each other and can only benefit from the convergence of interest from both disciplines.

If you want to know more about the history of graphical causal models and some of the amusing anecdotes around their origin (involving for example guinea pigs, but I shouldn’t spoiler), I can highly recommend you Pearl’s newest book “The Book of Why”, written together with Dana Mackenzie. It’s both an easily accessible introduction to the topic as well as an entertaining account of the last 25 years of Pearl’s research. On top of that you get some more funny rants about Karl Pearson—“causality’s worst adversary”. Definitely worth a read! :)

No Free Lunch in Causal Inference

Last week I was teaching about graphical models of causation at a summer school in Montenegro. You can find my slides and accompanying R code in the teaching section of this page. It was lots of fun and I got great feedback from students. After the workshop we had stimulating discussions about the usefulness of this new approach to causal inference in economics and business. I’d like to pick up one of those points here, as this is an argument I frequently hear when talking to people with a classical econometrics training. Continue reading No Free Lunch in Causal Inference

Becoming More Different Over Time

In my class we recently discussed a paper by Higgins and Rodriguez (2006)—published in the Journal of Financial Economics—that contains an important lesson for researchers who want to apply the difference-in-differences (DiD) method in competition analysis and merger control. Continue reading Becoming More Different Over Time

Nonlinear Mediation Analysis

This is a fair copy of a recent Twitter thread of mine. I thought it might be interesting to develop my arguments in a bit more detail and preserve them for later use.

Continue reading Nonlinear Mediation Analysis

Econometrics and the “not invented here” syndrome: suggestive evidence from the causal graph literature

[This post requires some knowledge of directed acyclic graphs (DAG) and causal inference. Providing an introduction to the topic goes beyond the scope of this blog though. But you can have a look at a recent paper of mine in which I describe this method in more detail.]

Graphical models of causation, most notably associated with the name of computer scientist Judea Pearl, received a lot of pushback from the grandees of econometrics. Heckman had his famous debate with Pearl, arguing that economics looks back on its own tradition of causal inference, going back to Haavelmo, and that we don’t need DAGs. Continue reading Econometrics and the “not invented here” syndrome: suggestive evidence from the causal graph literature