What is the key to business success? Much has been written on the subject. Perhaps reading a book or two about successful companies will provide the answer.
One thing those winning companies seem to have in common is the willingness to take bold risks. In fact, most successful companies have taken huge risks to get where they are now. So there you have it – bold risk-taking is one of those keys to success. Right?
Wait. Aren’t we forgetting someone?
What about the 80% of companies that, according to Forbes, fail within their first 18 months? If we only look at successful companies to discover what determines success, we aren’t getting the whole picture. Many of those failing businesses took big risks as well and those decisions may have actually caused their downfall.
Truly, the only common denominator among successful people and businesses is that they are successful!
A Matter of Survival
Welcome to Survivorship Bias. It occurs when our decisions are skewed by considering only the survivors (the “quick”) and not the failures (the dead).
Sometimes it is accidental, sometimes intentional. Either way, it’s a common and huge distortion that can lead to spectacularly poor decisions.
Talk to professional gamblers and you will find that a large percentage of them believe in beginners’ luck. And if anyone should know about luck, it's gamblers, right? Think about the early days when a person is new to gambling. If he fails, he is unlikely to make gambling his profession and will probably move into a more secure line of work. Like banking. But people who become professional gamblers are more likely to have struck luck early in their gambling lives than their banker friends, hence they experienced beginners luck. Professional gamblers are the “survivors” – a select subset of everyone who tries gambling. Looking at just the survivors makes it appear that beginner’s luck is a thing. Considering the losers as well will make you realize that beginners are just as likely to be unlucky as lucky.
The Celebrity Likes It
Another common form of survivorship bias is the celebrity endorsement. “I’ve been using Bob’s Elixir for three years and I’ve lost weight, have more energy, and I’ve never felt better!” Let’s assume that person is being 100% truthful and you trust them. That still does not account for the many other people that have used the product but are not doing endorsements and may have found the product to be a waste of money. Maybe it's great, maybe not, but the voice of one person is way too small of a sample size to draw a meaningful conclusion.
Why are we prone to this bias of only considering the winners? There are a couple of factors. Survivor stories are usually more available and easier to bring to mind than the failures. Remember, the lizard brain LOVES things that are fast and easy. It takes work to go beneath the surface - beyond just the winners - and the lizard brain hates work. Also, when we consider only the survivors we get a quick, clear picture and that feeds the lizard’s desire for certainty. But while that partial picture may seem clearer, it is certainly not more accurate.
Wait - don't jump!
Since this is a natural subconscious bias, the best we can do is to step back and try to recognize situations where we are seeing just the survivor’s side of a story. Instead of jumping to easy conclusions, ask yourself: Am I only looking at a select portion of the data? Is my sample size leaving out the losers? One of the great benefits of our technological advances is that there is much more data collected and made available than ever – “big data”, so it is easier to get the big picture when the small picture doesn’t tell the whole story. Taking that extra step is a great way to conquer the survivorship bias and will lead to better decision making.
Think well, be well!
- Steve Haffner