MDL Meets Latent Confounders: LNML-based Causal Discovery

Causal discovery with nonlinear mechanisms and latent confounders remains challenging. Existing methods often rely on either linear assumptions or causal sufficiency, limiting their applicability. We propose an MDL-based causal discovery framework that explicitly accounts for latent confounders while allowing flexible nonlinear mechanisms by minimizing the luckiness normalized maximum likelihood (LNML) code-length. The causal relationship between each variable pair is determined by selecting the shortest code-length of the causal model, and we introduce the notion of Delta-pseudo-collinearity to identify dependencies induced by latent confounders. Based on these ideas, we develop a greedy algorithm, termed Pseudo-Collinearity Guided Causal Discovery (PCG-CD). Experiments on synthetic and real-world datasets demonstrate that the proposed method accurately recovers directed causal relationships and effectively detects latent confounders.