Survivorship bias refers to the phenomenon of focusing only on successful cases and ignoring failures. This can lead to a bias in the actual situation, as failure cases often contain important information.
Examples of survivorship bias.
Investments: Investors tend to focus only on successful investment cases, such as Warren Buffett, Soros, etc., and ignore those that have failed, such as Bernard Madoff's Ponzi**. This can lead investors to overestimate the success rate of their investments and make wrong investment decisions, such as investing in high-risk projects, which ultimately leads to losses.
Entrepreneurship: Entrepreneurs tend to focus only on successful startups, such as Steve Jobs, Elon Musk, etc., and ignore those that fail, such as more than 90% of startups that fail within 5 years. This can lead entrepreneurs to overestimate the success rate of entrepreneurship and make wrong entrepreneurial decisions, such as choosing the wrong entrepreneurial direction, which ultimately leads to failure.
History: Historians tend to focus only on successful historical figures, such as Qin Shi Huang and Emperor Wu of the Han Dynasty, while ignoring those who failed, such as Xiang Yu and Li Yu. This can lead to a misconception of history, such as overestimating the individual abilities of successful people and underestimating the influence of the factors of the times and social environment.
The Hazards of Survivorship Bias
Survivorship bias can cause people to make bad decisions with undesirable consequences. For example:
Areas of Investment: Investors may invest in high-risk projects due to survivorship bias, which ultimately leads to losses.
Entrepreneurship: Entrepreneurs may choose the wrong direction of entrepreneurship due to survivorship bias, which will eventually lead to failure.
Public policy domain: Policymakers can enact the wrong policies because of survivorship bias, which ultimately leads to a decline in social welfare.
How to avoid survivorship bias.
Actively look for failures: Before making a decision, actively look for failures and learn from them. For example, investors can read books and articles on investment failure cases, entrepreneurs can participate in sharing sessions on entrepreneurial failure cases, and policymakers can study historical policy failure cases.
Consider the possibility of failure: When making decisions, consider the possibility of failure and have a contingency plan in place. For example, investors should conduct risk assessments before investing, entrepreneurs should formulate contingency plans before starting a business, and policymakers should conduct sufficient arguments before formulating policies.
Collect information from multiple directions: When making decisions, you should collect information from multiple directions and avoid focusing on a single piece of information**. For example, investors should consult with a professional investment advisor before investing, entrepreneurs should consult with multiple experts before starting a business, and policymakers should conduct extensive public opinion surveys before formulating policies.
Survivorship bias is a common cognitive bias that can have adverse consequences for people's decision-making. In order to avoid survivorship bias, people should actively look for cases of failure and collect information from multiple directions.
Expansion of survivorship bias.
Evidence of silence: Failure cases are often evidence of silence, as losers are often reluctant to share their failures. This makes survivorship bias more difficult to identify and overcome.
Data analysis: Survivorship bias can be identified through data analysis. For example, survivorship bias can be determined by analyzing an investor's yield distribution.
Education and training: Education and training can be used to raise awareness of survivorship bias and help people avoid the effects of survivorship bias.