Survivorship Bias

In AD 160, a ship capsized near the port city of Piraeus. Fighting the waves and torrential winds, the sailors attempted to reach shore. Of the 30-man crew, only a handful survived.

As the tale spread through the city, it caught the ear of the Emperor, who was visiting Piraeus from Rome. He promptly asked to see the survivors. As they were clothed and fed one sailor enthusiastically recalled the event.

The sailor ended by saying, “We prayed for survival. We prayed to the gods and by their grace we made it back to shore.” The Emperor paused for a moment. He had but one remark:

“Yes, but what about the men who prayed and drowned?”

The anecdote above is not about sailors or religion. It’s an account of how perception is skewed by survivorship bias. Formally, survivorship bias is the mistake of overvaluing outcomes that survive while neglecting those that do not — and it happens often and in varied fields.

Human are emotional, and the most emotional compelling combination that survives is what we remember. In the above example, it’s praying and being saved. (To the Emperor’s astute point, little thought goes to those who prayed and drowned.)

The same logical error happens many times a day. In finance, people look retroactively at fund performance and make bold statements: “Wow, it returned great money! Why would you put your money anywhere else?”

This might be true, but what are the chances of you investing in that one specific fund? How many dollars were invested that year? How many funds was that money funneled into? How many investors pulled out their money early, either for a small gain or for a loss?

We also have rosy images of individuals who fit our perception of who should be successful. We remember valedictorians turned entrepreneurs, candidates turned elected officials, Olympians turned gold medalists.

We draw strange comparisons, like when a President was five years old he too enjoyed vanilla ice cream. We remember heart-warming stories of how someone said they were going to win, and then they did.

All the while we pay little attention to those who want to win but end up with nothing to show for it.

Indeed, everyone who succeeds must believe it in his or her heart. But the counterfactual is not true: Everyone who believes they will succeed does not end up succeeding.

They win, and we create narratives afterwards. We turn a chance of success into inevitability all the while forgetting that pedigree counts for nothing.

In fact, pedigree is overvalued because we only remember those who ultimately become successful. The quiet group — those with potential who never succeed— is drowned out by the audience’s cheers.