Confounding variable
A hidden third thing that affects two other things at once, making them look connected when neither causes the other.
In plain English
Ice cream sales and sunburn rise and fall together, but neither causes the other: sunny weather drives both. Whenever two things move together, ask what else could be pushing both. Randomised experiments get rid of confounders by letting a coin flip decide who gets what.
Uncle Gary explains
Uncle Gary notices that ice cream sales and after-sun sales go up on the same days, and bans ice cream from the house. The sun was not consulted.
Why it matters for your money
Many market patterns are really a confounder in disguise, such as the whole market rising. That's why we compare every strategy with a random stock on the same days.
Where we tested it
- Lesson 7: Ice Cream Doesn't Cause Sunburn
- Why Do Bad Things Happen in Threes?
- Lesson 18: Simpson's Paradox: Better in Every Group, Worse Overall
Related terms
All glossary terms. Educational content, not financial advice.