Why you should not believe everything: The Survivorship bias

Why you should not believe everything: The Survivorship bias

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Do you follow a lot of Success Stories?

Do you tend to read a lot of articles with topics like:

  • 10 tips from the world’s most successful people
  • 15 things successful people do differently

If yes, then this blog is important for you.

We often observe that even after keeping ourselves so updated and precautious, our decisions and judgements often go wrong.
Whatever works for these successful people, should work for us too; in fact, it should work for most of us.

But unfortunately, this type of logic is Fundamentally flawed !

Let us consider this simple scam:

A company called XYZ claims itself to be a part of a Hedge Fund. It reaches out to 50,000 people and tells them that it can predict the stock market accurately.

The company then sends out a mail in the following format:
50% of the people will be informed that the market is about to rise, while the remaining 50% of the people will be informed that the market is about to decline. Each half will be informed with some appealing or reasonable explanation for the rise or fall.

At the end of the day, 50% of the people will be impressed with the correct prediction.

The company will then target this half of the customer base and repeat the same process. At the end of 10 days, they would have gained the trust of around 100 people that the company can predict the stock market accurately for 10 days in a row.

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The company then signs up these 100 customers and make millions in just 10 days.

A simple, but efficient way to make money. Right?

The weapon to get money out of people is with a piece of simple Financial advice:
To get rich, you must have an appetite to take Risks.

But the hidden statement after you lose your money is:
You may fail if you take risks, but you should understand what went wrong and learn from your mistakes.

We, as humans, always tend to listen to the winners and oversee the losers. They had taken risks too, but have gone bankrupt now. We all know that the number of successful people is very less compared to unsuccessful.

If we consider just the successful and ignore the failures, we will be heavily distorted by a view of reality.

No one really knows what it takes to be Successful.
Before taking advice from anyone, always figure out the factors and identify if you have taken all possible subsets into consideration so that the decisions are not biased.

Let us take a classic example to understand this better:

World War II analysis:

During World War II, the Britishers were analysing the location of the aircraft that would require shields to get protection against damages and crashes.

They initially thought to add armour to the entire aircraft, but it was not a wise option since the armour to the whole aircraft would make it really heavy and inhibit its flying capability.

So, they got the statistics of the locations where the aircrafts in the combat were getting hit the most.

Image courtesy: wikipedia.com

According to the statistics, they thought that the wing was the best part of the aircraft to be protected as it was getting the most number of hits.

Was this move correct?

They only got the data from the planes that came back. This clearly indicates that even when the planes were hit high on wings, they still managed to come back safely. However, there was less or minimal data on what happened when an aircraft was shot in the engine. Maybe there is a high chance that when shot in the engine, the aircraft is most likely to crash.

This is called Survivorship bias.

The Britishers were only relying on the data from the aircraft that survived the failure and made its way back. They only had specific data that were biased to the surviving aircraft. This discrepancy in data and knowledge leads to wrong and inaccurate decisions.

We are committing the same mistake in everyday lives. We often follow a successful person as our idol and try to do what they have been doing to get to success.
We so blindly get influenced by them that we overshadow things that unsuccessful people tell us to avoid in order to be safe.

We have seen Steve Jobs and Mark Zuckerberg drop out of college and make billions of dollars.
But there are millions of people who drop out of college and have barely made any money.
So, is the idea of dropping out of college logical?

Two major fields where this is a problem are Finance and Research.

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We have seen that a white paper on a medical science topic had been highlighted and praised, but 5 different papers that oppose or question that highlighted paper are cast aside and never brought to light. This creates a misconception about all possible outcomes and scenarios of a particular problem/domain.

This problem generally adds as a hurdle to scientific development and research.

It’s the survivors who get to make the rules. That’s the harsh reality.

The sample set that we see every day is incomplete and biased in a particular way.

It is very difficult to deal with Survivorship Bias.
Always be cautious of the fact that we might be missing something.

We all want to be successful and make better decisions. Do not fall in the trap of the Survivorship Bias. Do not stop at this article. Spend some time to read more about Survivorship Bias.

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