A great many of us have experienced this feeling during school sports selection.
You know you’re not the best in the class at the given sport and you know, bearing in mind the way in which the selection process takes place, that you’ll probably rank among the last to get picked.
It’s equally possible that the people observing the selection process will make the logical error of assuming those selected first are the best at the sport; it’s their names that will end up on trophies and in the selection process for professional clubs.
But what about the kids who didn’t make that initial selection process? The few who were left until the very end when selection becomes more a case of “well, if no one else wants them…”?
This is known as survivorship bias and can lead to overly optimistic valuations of people or things based purely on the fact they beat others to the post.
In our example from the school playing field, what if the last pupil to be picked was actually harboring a slowly growing confidence with the sport? What if, during the game, that person absolutely steals the show? Will they be remembered?
Survivor bias exists in many walks of life but is particularly evident in the world of work.
Today, we ask the question: what is survivorship bias, and how can you avoid it?
What is survivorship bias at work?
Survivorship bias often occurs in business due to lack of visibility.
Consider the company that ceased trading last year. Why is it excluded from analysis and financial reports for that industry during the time it was performing admirably?
It can take place in recruitment, too. For instance, the business which appears to grab all of the best talent might be seen from outsiders as the better place to work, or the company which offers the best employee prospects. In fact, the polar opposite could be true; survivorship bias simply suggests otherwise.
Correlation does not imply causation, and we should never make assumptions. Doing so in this manner can result in fallacy, half-truths and an inflated opinion of something which leads to poor decision-making.
In order to avoid survivorship bias in our examples above, the business that went under should absolutely be included in industry analysis, and the company which attracts the best talent can only be measured properly if the performance and happiness of all employees is measured.
Let’s consider some sector-specific examples of survivor bias.
It’s easy to think that, in this wonderful, hi-tech world of robotics, automation and 3D printing that the goods manufactured today are better than those from contemporary times.
However, if you’ve ever cursed at your laptop’s inability to last more than a year during heavy business use or have been dismayed by the poor fit and finish of your new car, you’ll know this is far from true.
What is survivorship bias in manufacturing? It’s exactly what we’ve just described!
Equally, “they don’t make stuff like they used to” is a huge, sweeping statement and doesn’t take into account the many manufacturers who produce genuinely brilliant products today.
It’s blindingly obvious when you think about it. Common sense dictates that only the products that were produced to the highest standard during contemporary times will still be alive and well today. It doesn’t mean that all products were well made. In fact, it is possible that the vast majority of products made in the past were not that great.
What about all of the goods and machinery that have failed and succeeded during those intervening years? Due to survivorship bias, they’re simply ignored or discounted.
Elements such as planned obsolescence and over-engineering are far more likely to have a genuine impact on the absolute quality of products and manufacturing techniques over time, and should always be taken into account when reviewing performance and making judgments about the market.
Urban and business architecture evolves considerably over the years, thanks to the way in which older buildings are torn down and rebuilt and modern design trends encourage innovation.
However, the buildings that stand the test of time are, usually, the ones that are built to the highest standard and which are most structurally sound. Thus, those that were torn down due to being weak or ugly are all but wiped from history, leaving the unfair belief that only older buildings are capable of standing the test of time. This is similar to the previous paragraph where we discussed products.
We all know who Bill Gates is. Similarly, you’d struggle to find anyone who’s unaware of Oprah Winfrey. But what about the countless technology geniuses and media starlets who never quite made it due to factors beyond their control?
This form of bias can be found prominently in highly competitive careers where the stories of the best performers and those who had the most luck are favored above the people who couldn’t get the break they equally deserve.
It doesn’t happen solely at the top-end of industry, either; bias like this, unfortunately, exists throughout the company tree, no matter the size of the business or sector within which it operates.
A lot of successful and well know entrepreneurs are college dropouts. This fact is often quoted in articles and videos on traits of successful people. This is a prime example of survivorship bias. What about all the people who were unsuccessful because they dropped out of college?
‘Post hoc ergo propter hoc’ is latin for ’after this, therefore because of this’, and refers to what’s known as informal fallacy.
If you’ve ever assumed a particular event must have been caused by another event, simply because that event followed the previous one, you’ve possibly fallen into the above trap.
We all do it and survivorship bias isn’t a failure – it’s human nature. However, being aware of its traps in business will enable you to make better, more informed decisions and avoid the traps associated with assuming something that probably isn’t true.
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