Hello Fellas !!!
A great man once said...
"Success becomes mandatory to those,
who are prepared to live the kindest choice,
rather than just trying to be profitable all the time ...!!! "
Here is one of the most crucial and rarely discussed topics ever in cognitive psychology which plays an important role in decision making. Remember in the earlier post I said good things coming this year well this is definitely one of them that will better your life.
Today's episodes hold important for those who are lost in deciding their path in careers or are just starting in deciding one. Well, take a pause and read this fellas it might help you in deciding better.
So, Fellas wasting no time further let's get started...
Survivorship Bias is a logical fallacy in which we make a conclusion
based on a small sample of a group rather than considering the whole
picture of the story. It happens when we consider only survivors of
any group and ignore the rest that also gone through the same phase
but failed. This makes a person overly optimistic about the world and
distorts our understanding of the realities. Shortly, we are only been
shown the one side of the coin which is likely to create huge problems
for us.
What is Survivorship Bias...
All of us might have heard tons of stories of successful people but
have you ever heard of stories of failures and losers? No, never,
because they do not look fascinating at all. Examples of Bill Gates
and Mark Zuckerberg fascinate so many students that they also become
dropouts thinking that they will also one day beat the odds and become
billionaires like them. Here, those students are looking only at the
bright side of the picture and are neglecting thousands of other
people like Bill Gates leaving the university but failing to achieve
success.
Survivorship bias risk is a chance of an investor to make an unwise
decision of investment while just seeing the data of successful
funds, rather than all funds. And then certainly, such types of
decisions lead to failure instead of success. It involves judging a
situation only based on people or things that are prominent or
visible.
Now, Let's look at some of the scenarios where survivorship bias
played a role. Well, until now I hope the one reading these should be
clear with the dilemmas if they are faced by survivorship bias or not
but if not these following case studies might help one in breaking the
loop so far,
Examples Focusing Survivorship Bias...
1.The Bullet-Hole Misconception:
The Famous bullet-hole misconception originates during World
War II, America’s SRG (The Statistical Research Group) was tasked to
examine the combat Aircraft. They were asked to examine the damage
done to the Aircrafts and recommend the military to put armor to those
places to curb the risk of future damage. After the proper
observation, statistician Abraham Wald suggested putting the armor to
the places where the least damage was done. This conclusion is an
excellent example of Survivorship Bias as Abraham Wald observed that
Aircraft which were hit at no-damage area never returned to the base
camp and were most likely to be shot down by the enemy. And hence
suggested the armor should be put around the engine area and the areas
that had the least bullets as they marked to be the most crucial or
sensitive parts of the aircraft.
This shows that if the only Aircraft that returned to the base camp
would have been considered ignoring other non-surviving aircraft that
could have distorted the results an epic example of survivorship
bias.
2.Survivorship Bias in Business:
Survivorship Bias also happens in Business as we tend to exclude the failures of Tens
of thousands of companies but only talk about a small bunch of
companies that got unparalleled success. This is also the same kind
of cognitive error that is done in business. It distorts the
statistics and pushes us to believe in false and unreal figures.
Most of the entrepreneurs are from very privileged family and their
probability to fail in Business is very low as they get suggestions
from very experienced entrepreneurs and friends. Even when they
incur losses in business, it does not affect their flow of business
and they continue to run the business instead of losses. On the
other hand, some people leave the business due to a lack of support
from friends, family members, and society.
In my personal experience and opinion, I partially agree with this scenario yeah means there are a lot of examples where the folks coming from a privileged background had always failed less often because they got all the resources but there also exist a moderate number of folks in my connection who choose to follow their entrepreneurial guts or I can say people who called 'Sankis' .antogonist is the word who went again the odds to create something they believe in one such people I know are the founders of Gig India Sahil Sharma and Aditya Shirole a startup where I interned in my engineering days.
And today they have been on fire. I mean yes they are backed by the
investors but they are also the ones who have been creating impact
at a steady pace. And also their this phase today came after a lot
of slow growth time and initial struggles these folks went through
and of course the credit goes not just to the investors but to these
people and also the team who stood with them and their families who
believed in there mission.
3.Survivorship Bias in Finance.
In finance, the prime example for Survivorship Bias is
researched on Mutual fund returns in which only successful Mutual
funds are considered and the research that does not include data for
the funds that no longer exist. Failing funds could have been closed
or merged in some other funds due to low profitability or any other
reason. Unfortunately, due to only considering the survived funds,
the research has many flaws and it can have disastrous effects on
the Decision Making of individuals which in turn makes it fall under
an epic list of survivorship bias.
4.Survivorship Bias in Goods and Architecture.
\
We all hear people saying that the cars made in the 1960s are
better than today’s cars. This has made us believe that those cars
were more reliable than todays’. This is one of the best examples of
Survivorship Bias. We do not see the hundreds and thousands of cars
that were simply forgotten. Here, you are highlighting the cars that
survived for a much longer time and excluding those which did not
survive. We simply see what is visible to them not that which is
hidden or factual is. As after seeing some ancient places in the
world, people say that, “Building built in past are well built”, but
here they are also doing the same mistake. They may be true about
that particular building as those buildings could be the best built
and maintained at that time. However, what about those buildings
which were made but have been torn down. Here again, we are making
the same logical error as we are not looking at all the buildings
that were built at that time but we are looking at a selective
subset of the building built in history.
Well, these all go to the understanding and analysis of the
survivorship bias. Now, what about overcoming survivorship
bias.
Let's Explore that...
How to avoid Survivorship Bias...
In our real world, we incur Survivorship Bias now and then which
makes our life a blurred picture. We should try to avoid this kind
of logical error by looking closely at the facts and figures. We
should make sure that the data used in making any sort of conclusion
is factual and complete. The data sources must be valid and reliable
which can provide a complete set of information in a very simple and
understandable way.
Many people ask “What is the opposite of Survivorship Bias”, the
answer is Reverse Survivorship Bias. This is the situation in
which losers are the survivors while the toppers or winners quit.
Here the most infamous and unpopular members remain but the strong
member's exit.
Reverse Survivorship Bias is applied to a variety of
fields like from simple housing markets to stock markets and even
the behaviors and skills of managers and investors. For example,
when we consider the poor performance of mutual fund managers, we
may see the skill or luck of the manager.
Reverse Survivorship Bias can be used to assess the
skills of individual investors, Pension fund managers as well as
Hedge fund managers. One more example of examining the Reverse
Survivorship Bias is considering the Russell 2000 index which
measures the performance of 2000 small companies included in the
Russell 3000 index. Here the winner stocks leave the index when
they become too big and successful while only the loser stocks
survive and are present in the small-cap index.
Final Thoughts...
Well, if someone asked me do I believe in this concept or the
philosophy of survivorship bias then my answer to them will
be,
"if someone somewhere somehow could have ever introduced me to
this concept early in my life where I could have used these also
as the phenomenon to be a factor in the decision-making process
and if it lets me avoid some choices then surely I might have been
highly grateful and thankful to that person in my life"...But as it seems that life is a journey where you have to be
responsible for your own returns, then survivorship bias doesn't
make a major dent. Because the ones who are ready to fall and learn,
become stronger and support the ones who support them. The choices
they make will be right only.
If you made it till the end here is something special for
you...
That's all For today's episode see you in the next one...
It's Mr.Rock Signing off!!!
Shukran, Alvida, Basalamat...Take Care all you lovely friends
except those who are vaccinated...!!!💙💚💜
Tags:
psychology