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Managers should ponder the direction and reality of cause and effect when they make decisions

It is fascinating to mull over what causes what. A few comments on this blog have adverted to cause and effect (See my posts of Nov. 11, 2007 on four contexts that vary by cause and effect; May 14, 2005 on “proof by anecdote”; and Jan. 1, 2008 on agency theory.). Many times I write in terms of a fact situation “causing” another situation, such as legal complexity being partly determined by the regulatory burdens on an industry (See my post of Dec. 14, 2005.). Three other observations are in order.

One point to ponder is which event is cause and which event is effect? Did a lower attrition rate result from an improved evaluation process or the other way around? Several of my postings have explicitly questioned a cause-and-effect direction (See my posts of Dec. 21, 2005 about emotional intelligence and success; Jan. 27, 2006 on in-house counsel and revenue per employee; Sept. 10, 2005 on law firm size and prominence in league tables; July 2, 2007 on market capitalization and the number of lawyers in a company; and Jan. 27, 2006 on business managers in law departments and lower total costs.).

A second point concerns the degree to which something causes something else. Historian use the term “over-determined” for the notion that an event has many antecedents and that it is very hard to disentangle which of them had priority (See my post of Nov. 24, 2007 on factors that put pressure on in-house counsel.). It is impossible to say, “Budgets accounted for 29% of our savings last year.” A magazine used the colorful phrase, “the hogswallow of multiple causation.”

The final conundrum is whether there was a confounding or determining third factor (See my post of Dec.12, 2006 on instrumental variables.)? For example, if you added a paralegal and outside counsel spending dropped, did spending actually decline because of the mix of lawsuits you faced changed?

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