Survivorship bias: meaning & examples

Introduction

Survivorship bias, or survival bias, is a psychological phenomenon that entrepreneurs are often unaware of. They see opportunities everywhere but forget what they don't see, the failures. This can lead to a distorted view of reality and an overestimation of the likelihood of success. In this article, we will take a closer look at the survivorship bias and its implications for entrepreneurs. We will discuss examples of how it can affect our decision-making, and provide tips on how to avoid this trap and chart a more realistic path to success.

What is survivorship bias?

The survivorship bias is a cognitive fallacy where you only look at the success stories and not the failures. The brain ignores the setbacks and stories we would rather not hear.

For example, do you judge the start-up world by the success stories of Facebook, Adyen and Thuisbezorgd? Then you forget that there are thousands of start-ups opposite that didn't make it.

The founder of the survivorship bias is Abraham Wald. He worked as a scientist during World War II and researched how bombers could be better protected from bullets. These bullets hit the bombers mostly on the fuselage, tail and wings. So where was the best place to put extra armor? Right, near the cockpit and engines. But isn't that illogical? Some officers declared Wald crazy. Surely the fuselage, tail and wings bore the brunt, right? No, that's not illogical. The fuselage, tail and wings did indeed suffer, but bombers who were hit here did return safely. Those were the survivors. The bombers that did not return were probably hit somewhere else: at the engines and the cockpit....

How does survivorship bias arise

Survivorship bias arises from misinterpretation of cause-and-effect relationships. Although there often appears to be a relationship, this does not necessarily mean that a direct causal relationship exists (Madhavan, 2020). This misperception stems from an interplay of several factors:

1. Selective attention: People tend to pay attention to success stories because they can be inspiring and motivating. As a result, we often focus on the winners and forget about the losers, who are often in the majority but less visible.
2. Success idealism: Success is often seen as the result of hard work, perseverance and smart decisions. While these can certainly contribute to success, the importance of external factors such as chance and market conditions is often overlooked.
3. Confirmation bias: This is the tendency to seek and interpret information in a way that confirms our existing beliefs and expectations. If we believe that success is within reach, we are more likely to emphasize success stories and ignore the failures that do not fit our optimistic view.
4. Media and social networks: Success stories are often widely reported in the media and on social networks, while failures receive less attention. This reinforces the perception that success is the norm and can contribute to a distorted view of reality. See also availability heuristic.

Examples of survivorship bias in practice

One can think of countless examples of survivorship bias. Here are some that are relevant to entrepreneurs:

• Success recipes from bestsellers: Many entrepreneurs read books by successful business people or entrepreneurs who share their secrets and strategies for success. While it can be helpful to learn from these experiences, it is important to realize that the strategies described in the book will not necessarily work. There may be many entrepreneurs who have tried the same methods but have not been successful, but they usually do not write a book and certainly not best sellers. People are good at explaining success after the fact, but rarely will you find a book that predicts success.
• Famous college dropouts: Many people hear about successful entrepreneurs who left college, such as Bill Gates or Mark Zuckerberg, and conclude that a formal education is not important for success in business. However, for every successful dropout, there are countless others who didn't make it, you just don't hear about them anymore. It is important to realize that these success stories are exceptions.
• Investment funds often show impressive returns from the start date. This is because funds that do not perform as well are cancelled because they are not interesting to invest in.

Tips influence survivorship bias reduction

To prevent survivorship bias from negatively affecting your decision-making as an entrepreneur as much as possible, here are some tips:

1. Look for the whole picture: Make sure you not only research success stories, but also pay attention to failures. Be aware that you will have to put more effort into finding information about failures.
2. Be critical of advice and consultants: Don't blindly listen to success stories and don't take for granted everything successful people say. Can they back up their advice with figures and theory or is it based on 1's own experience?
3. Evaluate external factors: Consider external factors, such as market conditions, timing and competition, when planning and making decisions. It is important to realize that success is not only the result of hard work and smart decisions, but also external factors that may be beyond your control.
4. Be aware that the probability of success of a good decision is never 100%. You can make the right decision and still be unsuccessful. For example: in poker, 2 aces is the best starting hand you can have. So it is wise to bet all your chips before a card is turned over. Yet even against the very worst hand (7-2 of different suits) you still have an 11.59% chance of not winning.

Here's how to make the survivorship bias work to your advantage

Be aware that your target audience also likes to fall into the trap of the survivorship bias. Therefore, make sure they see you as the big success:

• Promote successes! For example, if you are in the top 3 of a test, make this success visible everywhere: "came out best in the test. Customers also like to look at success stories and are less likely to spend a lot of time figuring out how and why.
• Highlight diplomas, certifications and seals of approval to show that you are the successful party.
• Did you start your business from an attic room or garage box? Tell this story as often as you can, people love it.

Resources

Madhavan, A. (2020, June 03). Correlation vs Causation: Understand the Difference for Your Product. Retrieved from https://amplitude.com/blog/2017/01/19/causation-correlation

Survivorship Bias - Overview, Impact, and How to Prevent. (2020, May 15). Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/other/survivorship-bias/

Survivorship Bias: The Tale of Forgotten Failures. (2019, December 02). Retrieved from https://fs.blog/2019/12/survivorship-bias

Wald, A. (1943). A Method of Estimating Plane Vulnerability Based on Damage of Survivors. Statistical Research Group, Columbia University.