Ever wonder why every rags-to-riches story seems the same, or why that “foolproof” investment strategy only seems foolproof? Chances are, you’re falling prey to Survivorship bias, a cognitive shortcut that can lead to disastrous decisions. This post will break down this powerful mental model, show you how it works, and give you the tools to avoid its pitfalls.

1. What is Survivorship Bias? #

Survivorship bias is the logical error of concentrating on the things or people that made it past a selection process while overlooking those that didn’t. By only focusing on the “survivors,” we often draw incomplete and inaccurate conclusions, believing the winners are representative of the entire group.

Think of it like this: you’re studying a pond and only focusing on the lily pads floating on the surface. You might conclude that all plants in this pond are buoyant and love sunlight. However, you’re ignoring all the plants struggling on the bottom, hidden from view.

The origins of this mental model are often attributed to World War II. Military engineers studied returning aircraft to identify areas that needed reinforcement. They initially focused on the bullet holes they found on the surviving planes. Statistician Abraham Wald pointed out the crucial flaw: these planes returned despite the damage in those areas. The areas without bullet holes were the ones that, when hit, caused the plane to crash. They should reinforce those areas! This crucial insight highlighted the danger of only looking at the survivors.

2. How It Works #

The core of Survivorship bias lies in the missing data. It’s like looking at a jigsaw puzzle with half the pieces missing and trying to guess the full picture.

Here’s a simple framework to understand how it works:

• A Group Begins: A large group of individuals or things embarks on a journey (e.g., starting a business, investing in the stock market, applying for a job).
• Selection Process: They undergo a process that filters them (e.g., competition, market forces, skill requirements).
• Survivors Emerge: Only a subset of the original group “survives” or succeeds.
• We Focus on Survivors: We tend to analyze and learn from only the survivors, ignoring the failures.
• Flawed Conclusions: We draw conclusions about success based solely on the survivors’ characteristics, neglecting the experiences and attributes of the non-survivors.

Imagine a pyramid scheme. The people at the top are raking in cash and flaunting their success. It’s easy to believe that if you just follow their “system,” you’ll be rich too. But you’re only seeing the very few who made it to the top. You’re not seeing the thousands who invested and lost everything.

3. Examples of the Model in Action #

Here are a few examples of Survivorship bias in action:

• Business: Reading about highly successful companies and attributing their success to specific strategies. We often ignore all the companies that used the same strategies but failed miserably. For example, hearing about a tech startup that succeeded by implementing agile development. But hundreds of others using the same methodology went under, for other reasons like bad product-market fit or poor execution.

• Investing: Believing that certain investment managers are geniuses because they consistently outperform the market. This ignores the fact that many other fund managers made similar bets but failed, and are no longer in the business. There’s a probability element in every investment decision, so the “winners” are more visible than the “losers” who are fired and quietly disappear.

• Personal Life: Listening to stories about how “tough love” or harsh parenting styles made someone successful. While this might have worked for some, it ignores all the individuals who were damaged by the same approach and never reached their full potential.

4. Common Misunderstandings or Pitfalls #

One common mistake is thinking that Survivorship bias only applies to financial situations. It creeps into almost every area of life, from our career choices to our relationships.

Another pitfall is assuming that “survivors” are always superior. Sometimes, survival is just a matter of luck, timing, or other factors unrelated to skill or merit. A business can succeed due to a competitor going bankrupt rather than through strategic decision-making.

5. How to Apply It in Daily Life #

Here’s how to combat Survivorship bias in your daily life:

• Ask “What’s Missing?”: When evaluating success stories, always ask yourself what data is being omitted. Who or what didn’t survive, and why?
• Seek Out Failure Data: Actively look for information about failures, not just successes. Research unsuccessful startups, read post-mortems, and learn from mistakes.
• Consider the Base Rate: Before jumping to conclusions, consider the base rate (the overall probability) of success. For example, what percentage of startups typically succeed in a particular industry?
• Challenge Assumptions: Question your assumptions about what leads to success. Are you sure the survivor’s characteristics are the cause of their success, or just correlated?
• Document Everything: Keep records of your own decision-making processes and outcomes, both positive and negative. This will help you identify patterns and avoid repeating mistakes.

6. Related Mental Models #

Survivorship bias works well in conjunction with other mental models:

• Availability Heuristic: This bias leads us to overestimate the importance of information that is easily accessible or memorable. Success stories are often more memorable than failures, exacerbating Survivorship bias.
• Confirmation Bias: The tendency to seek out information that confirms our existing beliefs. We might selectively focus on success stories that support our chosen strategy, ignoring the failures.
• Regression to the Mean: Extreme performances are often followed by more average performances. A “survivor” who had an exceptionally good run may simply be due to regression to the mean, rather than inherent skill.

By understanding and applying the mental model of Survivorship bias, you can make more informed decisions, avoid costly mistakes, and develop a more realistic perspective on success and failure. Don’t just look at the winners; learn from the entire playing field.