Overcoming Survivorship Bias: Making Impartial Decisions by Understanding the Psychology Behind it.
Survivorship Bias Definition
Survivorship bias is a logical error that occurs when we draw conclusions from a selective sample that only includes those who have succeeded while ignoring those who have failed. It is a form of selection bias that occurs when we focus only on the winners and overlook the losers, leading us to overestimate the likelihood of success and underestimate the risks involved.
In business, finance, and personal relationships, this bias can lead to a distorted perception of reality and hinder progress. In this article, we will explore what survivorship bias is, provide clear examples of it in various contexts, and discuss ways to overcome this bias to make impartial informed decisions.
"Success is not always a sign of skill, and failure is not always a sign of lack of skill. Survivorship bias can make us forget this fact." - Hacks Vitae
Examples of Survivorship Bias
Most Famous Example of Survivorship Bias
The most famous example of survivorship bias known is about the story of Abraham Wald, who was a mathematician working for the US military during World War II. Upon the return of heavily damaged aircrafts during World War II, the initial analysis of the US military was to reinforce the areas of the planes which had the most damage. Abraham Wald, however, argued that the military should reinforce areas on planes that had the least damage, as those were the areas that were most vulnerable. This counterintuitive approach was based on the fact that the planes that didn't return were likely hit in those areas. This critical insight led to the development of better armor on the planes' vulnerable areas, improving the survival rate of pilots.
Survivorship Bias in Finance
Investors often focus only on the stocks or funds that have performed well in the past, assuming that they will continue to do so in the future. This approach, therefore, ignores the many stocks and funds that have performed poorly or failed altogether. The failure of these stocks could also provide essential insights on how to perform well, but because of survivorship bias, this will almost likely be left unnoticed or overlooked.
Survivorship Bias in Business
Many entrepreneurs and business owners focus only on the successful companies and ignore the vast number of failures. They may assume that if they emulate the practices of successful businesses, they will achieve the same success. However, this approach overlooks the fact that there are many reasons why businesses fail, and success is often determined by factors beyond our control.
Survivorship Bias in Personal Relationships
We often hear stories of successful relationships that have lasted for decades, but we rarely hear about the many relationships that have failed or ended in divorce. This survivorship bias can lead us to underestimate the challenges and risks involved in maintaining a long-term relationship, as well as draw false conclusions and unrealistic expectations.
"Survivorship bias can lead us to ignore important lessons from failure, which can be just as valuable as success." - Thomas Edison
Psychology of Survivorship Bias
Survivorship bias has been extensively studied in psychology, and researchers have identified several factors that contribute to this bias. One factor is the availability heuristic, which is the tendency to rely on easily available examples when making decisions. Another factor is the confirmation bias, which is the tendency to seek out information that confirms our pre-existing beliefs.
How is Survivorship Bias Studied in Psychology?
Survivorship bias is studied in psychology using experiments that manipulate the availability of information about successful and unsuccessful outcomes. For example, a study might present participants with information about successful and unsuccessful business ventures and then ask them to estimate the likelihood of success for a new venture. By controlling the information available, researchers can examine how participants' estimates are influenced by survivorship bias.
Being Critical About Survivorship Bias
One way to be critical about survivorship bias is to ask questions and seek out information that challenges our assumptions. For example, if we're researching successful entrepreneurs, we should also look at the habits of entrepreneurs who failed to see if there are any commonalities.
Another way to be critical is to consider the context in which the success occurred. For example, if we're looking at the performance of a mutual fund, we should consider the economic and market conditions at the time of the fund's success.
"Survivorship bias can be dangerous, as it can lead us to believe that a particular strategy or approach is always successful when in reality, it may have just been lucky." - Daniel Kahneman
Overcoming Survivorship Bias
To overcome survivorship bias, one should be aware about the phenomenon; be open-minded; be critical about the subject matter; and be open in exhausting all possible sources of information. By doing so, one can impartially complete an accurate review and conclusion about the subject matter.
Steps to Overcome Survivorship Bias
Seek out and examine all available data, including failures and non-successful cases: It's important to gather as much data as possible and not just focus on the success stories. We should also look at the failures and non-successful cases to gain a broader understanding of the situation. This will help us avoid drawing conclusions based on a small sample size.
Be aware of biases and actively seek out information that challenges assumptions: Being aware of our biases is key to overcoming them. We should actively seek out information that challenges our assumptions and consider different perspectives. This can help us avoid making decisions based solely on our own biases.
Consider the context in which the success occurred: It's important to take into account all relevant factors when analyzing a success story. We should consider the economic, social, and historical context in which the success occurred. This will help us understand the factors that contributed to the success and avoid drawing false conclusions.
Use data and statistics: Data and statistics can help us avoid survivorship bias by providing a more objective view of the situation. We should use data and statistics to analyze trends and patterns, and to validate our assumptions.
Consult with experts: Experts can provide valuable insights and help us avoid biases. We should seek out the opinions of experts in the field and consider their perspectives.
Start Making Impartial Informed Decisions
Survivorship bias is a common cognitive error that can have significant consequences in a variety of areas. By actively seeking out information about both successful and unsuccessful outcomes and being aware of our biases, we can make more informed decisions and avoid costly mistakes. By examining the examples of survivorship bias in business, finance, personal relationships, and famous examples, we can see how this phenomenon affects our daily lives. Furthermore, by studying survivorship bias in psychology and understanding its underlying mechanisms, we can develop strategies to overcome it. Remember that failure is a necessary part of success, and we can learn valuable lessons from both our successes and failures.
"Survivorship bias can cause us to overestimate the odds of success and underestimate the risks of failure." - Nassim Nicholas Taleb
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Investopedia - Survivorship Bias Definition and Example https://www.investopedia.com/terms/s/survivorshipbias.asp