Survivorship Bias in Business - Deepstash

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Survivorship Bias: The Tale of Forgotten Failures

Survivorship Bias in Business

Statistics of market performance can be distorted when they focus on the rare successes while excluding companies which collapse.

Business books laud the rule-breakers who ignore conventional advice and still create profitable enterprises. However, many misfit billionaires succeed in spite of their unusual choices, not because of them.

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The Survivorship Bias
The Survivorship Bias

We tend to be interested in the success stories of many. We love the encouragement it provides us, but we often overlook the fact that most of these success stories have undergone through m...

The effects of survivorship bias

When we ignore the logical error of the stories and advice we hear it deceives us into believing that past failures are not adequate enough to be considered.

This bias induces people to see correlation in sheer coincidences.

A great example is when the U.S. Military tried to reduce aircraft casualties back in WWII. They analyzed the planes that got back safely but never the ones that didn't. They concluded that they should increase armor in the wings and the tails of the planes, but not the engine.

Survivorship bias in business

We must remember that most people do not become rich and famous. Most leaps of faiths are miscalculated. This does not mean that we should stop trying, instead we should remain to have a realistic understanding of reality.

Most entrepreneurs don't actually know what they're doing. There isn't a lot of them who have a detailed or a perfected plan to follow. Still, we try to "copy" their ways so that we can probably achieve what they have achieved.

Biases...
Biases...

... specifically cognitive biases, are your unchecked tendencies to make decisions or take actions in an irrational way. 

Instead of making decisions based on facts and data, you ...

Biases = shortcuts for processing information

The brain creates shortcuts in order to make fast decisions when it hits information or inspiration overload

These shortcuts form unconscious biases so it’s easier for your brain to categorize information and make quick judgments over and over again.

Self-serving Bias
It causes you to claim your successes and ignore your failures. 

This means that when something good happens, you take the credit, but when something bad happens, you blame it on external factors.

Self-serving bias may manifest at work when you receive critical feedback. Instead of keeping an open mind, you may put up a defense when your manager or team member is sharing feedback or constructive criticism.

Luck is a perceptual bias
Luck is a perceptual bias

In other people, we focus on the successful result, not the struggle and growth experiences they endured to reach it, while in ourselves, all we’re aware of is the struggle...

We control our luck

... to a certain extent. We may not directly affect major opportunities of our life at any given moment (like finding oil on our property), but we can indirectly influence how many opportunities spring up and the ferocity with which we pursue them.

Become a lucky person
  • Be a social butterfly: Lucky people enjoy relating to other people.
  • Periodically do something stupid: Luck is more likely to fall on those who take a dumb risk or two.
  • Maximize your positive luck and minimize the negative one.
  • Be optimistic: Our performance usually rises to the level of our expectations.