Posted by: csdivakar | September 22, 2013

Focusing on Success may lead to Survivorship Bias

What is Survivorship Bias ?

Survivorship bias is the logical error of concentrating on the people or things that “survived” some process and inadvertently overlooking those that did not because of their lack of visibility. This can lead to false conclusions in several different ways.

Survivorship bias can lead to overly optimistic beliefs because failures are ignored, such as when companies that no longer exist are excluded from analyses of financial performance. It can also lead to the false belief that the successes in a group have some special property, rather than just coincidence

Illustration 1 :-

During World war II, Flights were sent to enemy countries and only few returned to the starting point. ( If you send 10 Flights, only 3 survived and returned to the point with damage). Military saw the bullet holes at along the wings, around the tail gunner, and down the center of the body. Military commanders wanted to invest on wings, tail gunner and the center of the body. However, Mathematician Abraham Wald gave a different opinion to the Commanders that the holes in wings, tail gunner and center of the body are strongest. The holes in wings, tail gunner proved that these areas are stronger compared to the other areas. Wald advised to focus on the other areas of the body and fix it because those areas are weaker than Wings and Tail Gunner.

Survivorship Bias

Survivorship Bias is a tendency to focus on survivors instead of non-survivors. In the above illustration, the military focused on the planes that returned starting point and made a decision to focus on the holes. However, the focus has to be on non-survivors. (Flights not returned to the starting point).

Illustration 2 :- ( Emotional Effect of Survivorship Bias)

In “Fooled by Randomness “ Nassim Nicholas Taleb explains brilliantly with the below illustration ( I have shortened the illustration ) :

Marc grew-up in a small town and born for a tax accountant. He is a Harvard and Yale Graduate, working in a very large Law Firm and earning $500,000 a year. He focused on his profession and became the Partner of the Law Firm. However he ended up with separation from his wife due to lack of focus on his family. Marc married Janet and had three children in quick succession and moved to a very rich boulevard in New York city where successful corporate executives, high-flying entrepreneurs live.

Janet started feeling sad whenever she goes to school by seeing the wives of successful corporate executives and entrepreneurs who are not even smiling her.  She saw her husband as a failure, by comparison, miscomputing using the wrong distribution to derive a rank with the successful entrepreneurs and wall-street traders.

          Marc has done very well , better than 99.5 % of fellow americans.

          Compared to Harvard graduates he is financially stronger than remaining 90%.

          Among Yale graduates , he is at Top 40 % of successful people.

But, when compared to his neighbors, he is at the bottom because the people who live in the community are the Survivors who were successful in the business.

In the above example, Janet started comparing herself with the Survivors and ended up in a trap of emotional stress. Because we are trained to take advantage of the information that is lying in front of our eyes, ignoring the information that we do not see.

In same way, if we compare ourselves only with the promotees in organization, then we also end up in a Survivorship Bias.

Illustration 3 :-

If the three of the five students with the best college grades went to the same high school, that can lead one to believe that the high school must offer an excellent education. This could be true, but the question cannot be answered without looking at the grades of all the other students from that high school, not just the ones who “survived” the top-five selection process

Key Lessons:-

          Survivorship bias can lead to overly optimistic beliefs because failures are ignored.

          It can also lead to the false belief that the successes in a group have some special property, rather than just coincidence.

Survivorship Bias and My Learning: –

If you are thinking about opening a restaurant because there are so many successful restaurants in your hometown, you are ignoring the fact the only successful restaurants survive to become examples. Maybe on average 90 percent of restaurants in your city fail in the first year. You can’t see all those failures because when they fail they also disappear from view. As Nassim Taleb writes in his book The Black Swan, “The cemetery of failed restaurants is very silent.” Of course the few that don’t fail in that deadly of an environment are wildly successful because only the very best and the very lucky can survive. All you are left with are super successes, and looking at them day after day you might think it’s a great business to get into when you are actually seeing evidence that you should avoid it.

I am having a habit of buying books about successful people reading biographies of great leaders and learning lot about the history of companies that transformed the lives of human beings. ( NR Narayan Moorthy, Ambani, Barack Obama, Bill Clinton, Winston churchill, Gandhiji, Self-help books like How to win friends and influence people, The Power of Positive thinking, The Law of Success etc.,).  This will lead to over-confident, strongly biased and in complete.

          Analyze about Winners and Losers, successes and failures, the living and dead.

According to Rolf Dobelli, “The Art of thinking Clearly”, People estimate their chances of success. We can guard against Survivorship Bias by frequently visiting the graves of once-promising projects, investments and careers. It is a sad walk but it will help us to make a wise decision.

Conclusion: – Taleb’s point is that survivorship bias is a chronic syndrome affecting most people. We naturally ignore the data we do not see, so we must work hard to counter survivorship bias.

Source:-

http://en.wikipedia.org/wiki/Survivorship_bias

http://youarenotsosmart.com/2013/05/23/survivorship-bias/

http://blog.asmartbear.com/business-advice-plagued-by-survivor-bias.html

Book Recommendations : –

          Fooled by Randomness by Nassim Nicholas Taleb

          The Black Swan by Nassim Nicholas Taleb

          Thinking Fast and Slow by Daniel Kahnmen

          The Art of thinking clearly by Rolf Dobelli

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