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IAI Actuarial Core Principles · Actuarial Statistics · Purpose and function of data analysis

A pension fund analyst finds that, in a dataset of 2,000 members, the average salary rise is higher for members who attended a training programme. She concludes that the programme caused the higher rises. Which statement is the strongest criticism of this conclusion?

The strongest criticism is that association in observational data does not prove causation. Confounding factors, such as seniority or ability, could affect both who attends the programme and the size of salary rises, so the analyst cannot conclude that the programme caused the higher rises.

  1. AThe sample of 2,000 is always too small for any analysis
  2. BAverages must never be compared between groups
  3. CAssociation in observational data does not establish causation, as confounding factors such as seniority may explain the differenceCorrect
  4. DOnly median salary rises can be used in data analysis
  5. The conclusion is valid since the difference is positive

Explanation

Observational data can show association but cannot by themselves prove a causal link. Confounders, such as seniority or ability, could drive both programme attendance and salary rises. The other options make false general claims about sample size or the use of averages.

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