# Illusory Correlation

## What is illusory correlation?

Illusory Correlation is when we see an association between two variables (events, actions, ideas, etc.) when they aren’t actually associated.

## Where illusory correlation is seen

Consider the following hypothetical: Jane is an avid football fan. She watches every game that her beloved “Guardians” play on live television. Jane always wears her tattered Guardians jersey while watching their games— the same one she has worn for years.

According to Jane, it is vital that she wear her “lucky jersey.” The success of her team depends on it. A few years earlier, Jane had noticed that when she didn’t wear her jersey, the Guardians lost. This phenomenon happened a few times before Jane’s superstitions were solidified. Now, she is certain: the success of her favorite football team is in some way related to her wearing this jersey.

Jane’s mistaken belief that wearing her jersey at home is related to performance of her favorite football team can be attributed to illusory correlation. The two variables are not related in the way that say, height and weight are, for example.

## Individual effects

Many of our decisions are made by looking at the relationships between various phenomena. We see that certain things consistently occur with or after others, which leads us to conclude that they are related. We may not know why they are related, but we know their occurrence is tied together. A business executive might see that sales usually rise at the same time as golfing season begins, but they aren’t sure why this is. They just know that their product tends to sell more in April, which happens to be when golf courses open. As a result, the firm stocks up on product supplies for April.

We can’t always know if and why two things are causally related. Sometimes, it’s enough to know that they are somehow related. If we see this relationship occur many times, we become confident that the correlation will reliably recur in the future. We often take risks based on our confidence in the correlation between different events or behaviors. For example, the time of day is correlated with traffic. Based on our confidence in this correlation, we might choose not to take the risk of driving during rush hour to make an appointment. Because we often make risk calculations and decisions while noticing the occurrence and recurrence of correlations, it is important that they are accurate. Taking stock of illusory correlations jeopardizes this, causing us to make poor decisions and take unwise risks.

## Systemic effects

Illusory correlation can have damaging implications. Decisions made at an institutional level are usually informed by correlations drawn from data or observations. False correlations can motivate biased institutional policy. For example, illusory correlations contribute to stereotypes and institutional racism. The public disproportionately notices violence perpetrated by minority groups and connects this violence with certain races or ethnicities, despite no such correlation existing. Public officials and debate have connected immigrants to crime on many occasions. Harsh immigration restrictions and stricter deportation methods have sometimes been implemented as a result. A recent review of studies on the topic published between 1994 and 2014 found there is no positive correlation. In fact, studies show a weak negative correlation.

According to this data, increasing immigration could reduce crime. This logic can be applied elsewhere: when many decision-makers see correlations that don’t exist, misguided and harmful policies are enacted. Professions that rely on noticing patterns in the market or public affairs may also be subject to illusory correlation. This can result in suboptimal decision-making in the workplace.

## Why illusory correlation happens

There are two sorts of illusory correlations: expectancy-based and distinctiveness-based illusory correlations. The former occurs when we mistakenly see relationships due to our preexisting expectations surrounding them. The latter happens when a relationship is believed to exist between two variables due to focusing too much on information that stands out.

Both of these illusory correlations can be attributed to our brain’s use of “heuristics” or mental shortcuts. Evaluating evidence takes time and energy, and so our brain looks for such shortcuts to make the process more efficient.

##### The availability heuristic

This is our tendency to use information that comes to mind quickly and easily when making decisions about the future. As a result of the availability heuristic, variable pairings that come to mind easily (either because they appear, because they are quick to grasp, or because they seem likely), are seen as correlated. For example, ice cream and gluten intolerance mentioned together frequently, we might think they are correlated when they aren’t. This is because this pairing is more distinct than others, and will more readily come to mind when we look for correlations than pairings we haven’t seen before.

##### Confirmation bias

As another cognitive shortcut, confirmation bias, occurs when we notice, focus on, and give greater credence to evidence that fits with our existing beliefs. Confirmation bias has been linked to illusory correlation, as we look for relations that confirm our preexisting beliefs surrounding two variables. For example, if we believe flying is dangerous, we are more likely to expect correlations between increased flying and deaths related to transport.

## Why we should be aware of illusory correlation

Illusory correlations can cause us to make misguided and risky decisions. As mentioned above, when we make decisions surrounding a phenomenon, we look at its relation to other variables and make risk calculations based on how sure we are of those relations holding in the future. For instance, when a regulatory board looks at the dangers surrounding a new industrial chemical, they may look at whether rates of cancer have gone up in areas where it is most used. Based on the certainty of this correlation, they may or may not restrict this chemical. Illusory correlations can therefore impact the effectiveness of our decisions and how much risk we are willing to accept when making them, which can sometimes have disastrous consequences.

It can also make us blind to correlations that really do exist. If we are focused on illusory correlations because we believe they are indeed true, we are less likely to look for other correlations that might actually be present. This can lead to missed opportunities and false conclusions.

## How to avoid illusory correlation

We should try to reduce illusory correlation because of the damaging effects it can have. A 2011 study found that illusory correlations can be reduced by understanding under what conditions our minds tend to misconceive relations. The researchers found that illusory correlations tend to occur “under conditions in which the participant is not personally involved.” In other words, we see false correlations in areas and circumstances that we have little knowledge or personal experience in.

As such, the authors concluded that “developing evidence-based educational programs should be effective in helping people detect and reduce their own illusions.” Because we are particularly susceptible to illusory correlations in unfamiliar areas due to our lack of experience in them, we can reduce the bias by becoming more informed in those areas.

## How it all started

While the phenomenon itself is not new, the term “illusory correlation” was first coined by US psychologists Loren J. Chapman and Jean Chapman in 1967. They conducted various experiments in which subjects were told to draw a person according to their own diagnostic category. Chapman and Chapman found that there were semantic associations between diagnoses and certain features that were drawn. For instance, patients that worried about their intelligence would emphasize the head in their drawings.

Illusory correlations were first empirically demonstrated by David Hamilton and Robert Gifford in 1976. They had participants read a series of sentences describing either desirable or undesirable behaviors, which were then attributed to the members of two different groups: locals and immigrants. Even though these behaviors were actually associated with both of these groups, participants overestimate the association between undesirable behaviors and the minority group (ie. immigrants). This illustrated the role of illusory correlation in stereotyping.

## Example 1 – Looking for patterns in finance

Financial analysts and investors are often subject to illusory correlation. A 2011 paper by American business researchers looked into the certain stock price patterns and the future trends they often associated with. More specifically, they examined the “head-and-shoulders” pattern (three price peaks, the highest of which is in the middle) that is said to predict a future downtrend in stock price.

In reality, the researchers claim that this pattern does not accurately predict any future price movements. The upshot is that “ the correlation between the signal [the head-and-shoulders pattern] and future U.S. equity price movements asserted by technical analysts does not exist.” They therefore claim it is an illusory correlation that impacts trading significantly, as “unusual  trading upon the completion of a head-and-shoulders pattern averages over 40 percent of a day’s trading volume.”11 So, because investors often associate certain price patterns with future price trends, when no such association exists, illusory correlation causes significant sub-optimal decision-making in the financial world.

## Example 2 – CEO compensation and golf

In a unique study done by European business researchers in 2010, found that perceived golfing performance was positively related to CEO compensation. This is to say, CEOs who play golf well make more money than those who don’t— average nearly 15% more, they find.

This is because golf performance is taken to be a cue for corporate performance. People associate a CEO’s record on the golf course with how good they are at their job. However, the researchers also find that GEO golf performance is not positively correlated to the corporate performance. It is actually negatively correlated. So, the association between gold performance and corporate performance is actually an illusory correlation.

But why is golf so important? The researchers speculate that CEO remuneration decisions involve various tangible measures of past performance as well as observations of “soft” social skills such as golfing. Golf clubs are also settings in which other relevant business actors socialize. Being a good golfer therefore carries into the business world as a sort of “halo effect.”

## Summary

##### What illusory correlation is

Illusory correlation is when we see an association between two variables (events, actions, ideas, etc.) when they aren’t actually associated.

##### Why illusory correlation happens

There are two sorts of illusory correlations: expectancy-based and distinctiveness-based illusory correlations. The former occurs when we mistakenly see relationships due to our preexisting expectations surrounding them. The latter happens when a relationship is believed to exist between two variables due to focusing too much on information that stands out.

Both of these illusory correlations can be attributed to our brain’s use of “heuristics” or mental shortcuts. As a result of the availability heuristic, variable pairings that come to mind easily (either because they appear often or because they are quick to grasp), are seen as correlated. This is because this pairing is more distinct than others, and will more readily come to mind when we look for correlations than pairings we haven’t seen before. Confirmation bias has been linked to illusory correlation, as we look for relations that confirm our preexisting beliefs surrounding two variables.

##### Example #1 – Looking for patterns in finance

Financial analysts and investors are often subject to illusory correlation. A 2011 paper found that a certain stock price pattern is associated with a future downtrend in stock price. In reality, the researchers claim that this pattern does not accurately predict any future price movements. They therefore claim it is an illusory correlation that impacts trading significantly, as “unusual  trading upon the completion of a head-and-shoulders pattern averages over 40 percent of a day’s trading volume.” Because investors often associate certain price patterns with future price trends, when no such association exists, illusory correlation causes significant sub-optimal decision making in the financial world.

##### Example #2 – CEO compensation and golf

A 2010 study found that CEOs who play golf well make more money than those who don’t— average nearly 15% more, they find. This is because golf performance is taken to be a cue for corporate performance, even though they find a negative correlation between the two. The association between golf performance and corporate performance is actually an illusory correlation. The researchers speculate that this is because CEO remuneration decisions involve observations of “soft” social skills such as golfing, and golf clubs are also settings in which other relevant business actors socialize.

##### How to avoid illusory correlation

A 2011 study found that illusory correlations can be reduced by understanding under what conditions our minds tend to misperceive relations. We tend to see false correlations in areas and circumstances that we have little knowledge or personal experience in. The researchers therefore concluded that “developing evidence‐based educational programmes should be effective in helping people detect and reduce their own illusions.” We may be able to combat the illusory correlations that we are particularly susceptible to in areas we aren’t familiar with by becoming more informed in those areas.