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Quantitative Methods
Quantitative Methods
Medium
An analyst at Pinehurst Research finds a correlation of r = 0.78 between a company's R&D spending and patent filings over 30 years. She concludes that increasing R&D spending causes more patent filings. This conclusion is most likely flawed because:
A
Correlation does not establish causation; a confounding variable such as company size may drive both R&D spending and patent filings.
B
The sample size of 30 is too small to draw any meaningful conclusion about the relationship.
C
A correlation of 0.78 is not statistically significant at conventional levels.
D
The relationship must be non-linear since the correlation is below 1.0.
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Tags
#correlation
#causation
#confounding-variable
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