The sushi-and-Sharpe trap

Question

An analyst notices that trading desks which order more expensive sushi lunches also post higher Sharpe ratios, and proposes upgrading everyone's lunch budget to boost performance.

Explain why this reasoning is flawed and name the statistical culprit.

Accepted Answer

Correlation is not causation. The data may genuinely show that sushi spending and Sharpe move together, but that pattern does not mean sushi causes good returns. Something else is likely driving both. The lurking variable. A natural candidate is desk profitability / budget: highly profitable, well-resourced desks both (a) have larger discretionary budgets, so they order fancier lunches, and (b) attract better talent, technology, and risk capital, so they post higher Sharpe ratios. Profitability is a confounder: a common cause that influences both the "predictor" (sushi spend) and the "outcome…

The sushi-and-Sharpe trap

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