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Why We Only Hear About The Winners? Survivorship Bias Explained | FutureIQ

7,163 views Wait, is this logic right? • Jan 06, 2024
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Slog Reference: Fooled by randomness, luck vs survivorship bias

Description

There is an explanation for why we only see success stories of successful people - survivorship bias. Let’s try to understand what is survivorship bias. How it affects the things we understand. What does it tell us about success stories and should you follow any advice at all? Let’s learn all these things with some interesting examples.

Hope you enjoyed FutureIQ by Navin Kabra and Shrikant Joshi. Do hit us up on Twitter:
@ngkabra http://twitter.com/ngkabra
@shrikant https://twitter.com/shrikant

Listen it on the podcast provider of your choice: https://tapthe.link/FutureIQRSS
Watch other episodes of The FutureIQ podcast: https://www.youtube.com/playlist?list=PLAppTB0r5_TaYueZ0adD42Wiw5X-wTE4v

Books:
Fooled by randomness: https://tapthe.link/FooledByRandomness
Good to great: https://tapthe.link/GoodToGreat

More videos for you:
The Randomness of Science: https://youtu.be/uNhT2hRtqUU
Sell Anything To Anyone: The Power of STORIES: https://youtu.be/ErIcgAEW0t0
Karmanye vadhikaraste: https://youtu.be/95Zi_4OthbY
Power law: https://youtu.be/i2YrICwDR5g
Jeff bezos: https://youtu.be/aQg7dAJWqyk
Costly signalling: https://youtu.be/0YEBK7eR3Ek
Dunbar's nubmers: https://youtu.be/ekAtODyfkyw

Reference materials:
https://www.forbes.com/sites/rickferri/2012/12/20/any-monkey-can-beat-the-market/?sh=37baec7d630a: Monkeys beat the stock market (see also, the most successful chimp on Wall Street - 22nd most successful money manager https://www.guinnessworldrecords.com/world-records/most-successful-chimpanzee-on-wall-street)
https://twitter.com/JoePompliano/status/1355690179810439171: Sylvester Stallone story
https://twitter.com/the8472/status/1628109270230106127: Russian Roulette
https://xkcd.com/1827/: xkcd successful lottery ticket buyer
https://sketchplanations.com/sampling-bias: Sampling bias (online surveys)

Chapters:
00:00 Introduction
00:32 Example
04:00 Fooled by randomness
05:40 Alpha
06:03 Luck
06:42 Post hoc fallacy
07:58 Survivorship bias
11:18 Example
14:43 More examples of survivorship bias
17:06 The reasoning
17:56 The takeaway
18:58 More quick examples
26:56 Advise to take & avoid

#futureiq #survivorshipbias

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Fooled by randomness, luck vs survivorship bias

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Transcript

shant if I told you that I have a friend who gives stock market advice and five years in a row she has beaten the stock market would you assume that she is a genius and would you take stock advice from her H 5 years in a row yes H that's very very interesting I probably let me make it 8 years in a row then I'll definitely ask for a number correct let me prove to you that something like this could have happened even if stocks are picked by complete morons okay a monkey could have done this okay okay so for example doesn't really board well for your friend here yes I don't have friends who
give stock picking advice for the reason that anybody who thinks they're good at picking stocks except for one or two real geniuses everyone else is deluded okay so let me start with my main example okay now let's say let's start with 32 monkeys 32 okay yeah and we have each monkey throw dots at a doart board which has names of our top 20 stocks in the country like from SX okay and we just buy the stocks that the monkeys Dart picked okay okay just out of complete random chance there is a 50/50 chance that that stock will go up or down up or down right 50% chance it's a BC sunx stock so 50% chance it'll do
better than the sunx 50% chance it'll do worse than the sunx okay so now at the end of one year we started with 32 monkeys what happens 16 monkeys have picked losers but 16 monkeys picked stocks that went up 5050 chance that is why 16 16 okay I continue this process for one more year okay okay now and I ignore the 16 monkeys who are losers clearly they can't pick stocks well of course they can't they don't have D throwing capabilities but the 16 who picked winning stocks I think they are on to something right so I continue with them repeat the process end of the second year half of those have picked losing stocks but half of those have
picked stocks that went up two years in a row down to eight monkeys down to eight monkeys third year down to four monkeys fourth year down to two monkeys fifth year down to one monkey so at the end of five years I have one monkey that has picked the winning stock 5 years in a row smart monkey or actually good dark throwing monkey correct so this is complete Randomness right you just start with a large enough sample and even idiots can seem like Geniuses yeah but for that one monkey to be your friend I mean for your friend to be that one person see if you are the kind of people to go around looking for stock tips
right all these monkeys are going to gravitate towards you especially the ones who somehow through luck managed to pick winning stocks a few years in a row all right so are you telling me that picking stock is basically as good as monkeys throwing darts I am not telling you there are actual studies and by actual studies I don't mean actual studies with monkeys throwing dots yes actual studies with monkeys throwing dots and the monkeys beat most of the mutual fund managers on Wall Street okay there are links take a look at the links there is the amazing chimp who was the 27 second best money manager for the here I have only one question yes is the
amazing Chim still playing with the stock market and playing with those dos because I would like to follow that CH clearly his dots are hitting the right targets so here was the thing right you have hundreds of friends who pick stocks okay and at the end of one year half of them have picked losers so you stop talking to them this is how it works I mean most people who claim to have made a lot of money on there there's another problem right one is just this sheer Randomness another is that our brains are very funny that way monkey brains our monkey brains right the stocks that you lose money on you forget but that one stock
which went from 100 to 322 right that and you are like you know for the next 10 years you will keep talking about that one stock that went from 100 to 322 I mean even I remember that look golfers play a lot of games but they remember the the one thing they remember the most is that time they scored a whole in one if you have a stock picking friend okay not a full professional but a friend who thinks uh they're good at picking stocks ask them do you write down in an Excel spreadsheet each and every stock that you bought and how much money you made and here is the tricky question do you
compare that to how much the sensex made in the same amount I have always known that ETFs exchange traded funds are a better option any day mutual funds are a better option any day but what you basically telling me is that the stock market is nothing but a game of Randomness like throwing dots on a board random no no basically there is a very very very tiny fraction of people who know which ones are going to go up okay that by the way in stock market parans that is called Alpha okay so there is a tiny fraction of people who have Alpha okay those guys get insane amounts of money on Wall Street or Dalal Street
they are not your friends okay and if they have a stock tip they are not telling you unless you have insane amounts of money okay so anyone giving you stock tips is a monkey they are Fooled by Randomness just to complete that thought right I have one friend who actually has Alpha and the way he gets it is not by getting stock tips on WhatsApp right he actually goes and talks to the CEOs of companies he talks to like the second level managers and he talks to the bankers who are giving them loans and you know that level of analysis has to be done if you want to know what is going to go up so basically
there are two principles that I want you to understand right one is how humans misunderstand luck and think it was designed okay right because it's just you know something happened and then something else happened correct and we assume that the second thing happened because of the first thing the correlation causation confusion correct this has a Latin name the post Hawk fallacy the full phrase is post Hawk ero propter Hawk meaning this happened after this okay therefore it happened because of this humans have a tendency toake correlation for caus so let me give an example you have a 5-year-old kid I do the kid has asema and all the medicines you have tried modern medicines have not
worked so you go to Hyderabad and you get like this fish medicine where you put a live fish in that person's nose and the kid gets cured down the throat not the nose down the throat but yes no no nose is the medicine for getting a male boy male child I don't know why he knows all of this but I'm I'm worried that he knows all of this know actual relatives have suggested this to me okay and all of these are a result of the fallacies we are talking about today okay basically what has happened to the kid with astha is that lots of kids have asema when they are young and because their lungs are not yet fully developed
and around the age of five it just gets okay by itself so but parents who don't know that go around trying a whole bunch of things and the last thing they try just before it gets better by itself they assume that that was The Cure yes that is what usually happens correct so this is the post Haw fallacy and a close relative of this fallacy is something called survivorship bias okay so let me give another lovely example of survivorship bias okay uh so in World War II the Allies were sending airplanes over Germany correct to drop bombs and Germany was of course shooting them with guns anti-aircraft guns and what they decided was they were losing planes
correct correct uh so they decided we should strengthen the body of the planes and what they did was when the planes came back they studied the planes to look at which places have bullet holes okay yes of course and they said okay and they found the clear pattern there were some places no bullet holes and some places with lots of bullet holes yeah the wings I remember I remember this image the wings had a lot of bullet holes the tail had a lot of bullet Hol so this is a famous image if you look it up you will find it but then they said okay fine the parts with the bullet holes let us strengthen those I me you
don't want to strengthen the whole airplane why because it's a war and there are limit resources and you have to conserve your steel and whatnot you have to conserve steel and plus aircraft becomes heavier and takes more fuel all kinds of problem let us strengthen just the parts that have the most bullet holes that's what they said and there was a mathematician called Abraham world and he said you guys are idiots let us strengthen the parts which have zero bullet holes uh what okay H why because the point is that the aircrafts which got hit in those places did not crashed and never came back yes the aircraft that survived gave you a pattern that
you thought was the pattern that you needed to work on but that's not the truths so this is the survivorship bias we only study the survivors this is true of airplanes this is true of startups this is true of celebrities this is true of businesses and this is true of pandemics pandemics this is true of je studies right so yeah I mean you know there was a time when there was a time when I used to go around talking about how I studied for the G and you it became very popular and there were like all kinds of websites copying my article and pasting it and all of that right later a few people pointed out to me that you know maybe
it's just something Weir about you right just because you did that doesn't mean that is what caused you to crack G right somebody else doing that might not nobody is going around asking them stories about how you studed for right unless you compare how the successful people studied and compare that with did the unsuccessful ones did not do the same thing only then it makes sense otherwise it a survivorship bi us right correct because you survived J you went on to do an IIT education and you got an i degree you had you took that correlation and converted it into a CA purely on the basis of your survivorship in this process there are people who
didn't do J like me who may have followed the same pattern but did not get no no I do know how I do have friends now who did very similar things uh didn't do the J but you know you have to know that there survivorship bias right another example let's just take CO as an example right and this happens even with like fancy research reports and Science and so on so there was a bunch of hospitals which reported that they are seeing a bunch of cases of covid reinfections this was in 2021 or so right we are seeing reinfections and the reinfections are more severe than the original infection okay okay and there was no reason to assume that the
hospital is lying but still this could be a totally wrong report for the simple reason again survivorship bias okay okay this is a different kind of survivorship okay imagine that uh 100 people get reinfected 10 of them get a severe infection 90 of them get a mild infection they just have crine at home and never bother going to the hospital the T severe ones end up in the hospital so now the hospital thinks that all infections are severe but in reality it's only the severe ones that came to the hospital that is survivorship by us right like that in the trip to the hospital the mild cases didn't survive they went back home right that's what it
means Survivor didn't survive in the sense didn't survive the analysis okay yeah so and just to the reason why it is so popular is that human brain has evolved to like stories and just so explanations right okay so whenever there is a sequence of things that happen and somebody can weave a story around that H we like it right yeah I mean I live my life parading around as a Storyteller and I basically take a lot of situations and then weave them together inun in fact we will do an entire episode on this that never if you're trying to convince someone never just give them a bunch of facts instead give them a story so stories yeah humans
love stories and stories have a big impact on humans and all post Haw fallacies are stories right all survivorship biases I mean we love Survivor stories right the number of movies we love stories period we especially we especially love Survivor stories because uh you know oh Sylvester Stallone was down to his last $20 he sold his dog because he didn't have money yeah and then when a producer uh asked bought Rocky from him he no not bought wanted to buy Rocky he refused he said no I want to be the director even though he didn't have money he insisted that I will not give it to you unless you make me the director thankfully the producer did make him the
director and it went on to be a huge hit and Sylvester Stellan bought his dog back for $20,000 such a beautiful story which he probably sold for $20 or $100 or something yeah but it's it's his doy you cannot put a price on love and etc etc but this is survivorship bias right very likely that there were a bunch of other actors very likely they were about to sell their story and they insisted I want to be the director and the producer said you know not happening bye not happening but just to drive home the point let's take some silly examples of survivorship bias right okay this I'm curious about you know the game Russian
roule of course I know the game Russian Ru I've never played it because I'm smart you have a revolver and I know it because I'm alive you have a revolver with six compartments and only one bullet and you like look everybody know knows Russian roule so if you do a survey of do you like Russian roule five out of six people will say great game I made a lot of money why yeah the number five out of six is important because generally a revolver contains six Chambers and one of it is a bullet six five out of six do not have a bullet correct yes I mean if you do an online survey H okay and you ask do you like
taking online service you're going to get a 100% yes rate right because the people who don't like online service don't take online service but why would you do an online surve about liking online service okay so you think you think I these are silly examples okay now let silly example let me give you real examples please a rsha driver returns a wallet every three or four months our newspapers have the story about how a ria driver went out of his way to return a wallet and you know it's like yes drivers are the best we need good News man we need good news in our newspapers and our news channels and whatever yeah please let it the point is
that all the Raa drivers who run away with the money never get reported but yeah okay you want good stories right I will give you the reverse every time you read about you know some guy who got beaten up somewhere and some guy who had an accident and whatever news never reports okay yes today Shri drove on the roads and didn't come have an accident today Shri Kant uh you know had a transaction with somebody and the other guy didn't con him right I literally had an accident three days ago so the problem is that the regular 90% of occurrences which are normal don't get reported in the news right so everything in the news is like biased
reporting like this yeah because news is essentially meant to inform you of things that are not regular right yeah except that our brains tend to think of it as not the highlights really but as the actual continuous real life so I agree with you there see our brains evolved to understand 150 people at a time yeah right dunbar's number check out we have an episode on that important episode It's a Wonderful episode so if you only knew 150 people and then anything bad happened to one of them you find out about it and your brain says oh this is important I have to remember this because the thing can happen to me correct that's a very good thing and
that's how we learn to survive that's how our brain has been calibrated now suddenly newspapers go to 150 cres cres crores of people so now the amount of bad news you get has been multiplied by a CR but your brain hasn't adjusted to any of that and it can't adjust to any of that because it's a huge number 150 so what you learn from today's episode the takeaway is that be aware that this might just be luck okay this might not be normal ask yourself what are the chances that this just happened completely out of random and doesn't have any actual explanation yeah because a lot of the examples that you've given so far are essentially
random occurrences that we have tried to put a reasoning to yeah not try to we have put reasons without realizing that we have put non-existent reasons right so basically every time every time something happens first ask the question did it happen by random yeah and then ask the question okay if it did not happen by random was there a cause to it but never before that is this just simply survivorship bias right so uh and train yourself to recognize examples like this which is why what I'm going to do is that go through a whole bunch of examples okay like this uh that will help you right so uh one thing thing that is heard quite a lot especially in
startup circles is that college is a waste of time you should drop out of college do you know why because Bill Gates dropped out of college and started Microsoft Mark Zuckerberg dropped out of college when he started Facebook Steve Jobs uh is a College Dropout so obviously if you drop out of college you will become Bill Gates or Mar zukerberg or Steve Jobs aha this is where the concept fails because I dropped out of college I'm not Steve Jobs exactly this is this is there are two uh things that explain this one is of course that all the people who dropped out of college and failed miserably this happens to most of the dropouts nobody talks about
them this is clear survivorship bias okay the second part here is also costly signaling right they got into Harvard and in case of Bill Gates and Mark Zer both are Harvard Steve Jobs's uh Stanford yeah and then they dropped out right already the most important part of college especially getting to a top college is costly signaling we have an episode on this check it out right two episodes essentially they they they were good enough to get into Harvard and Stanford and then they dropped out which basically meant that they were probably better than what Harvard and Stanford could offer them so them dropping out is a wholly different thing right so costly signaling right that explains that right
another is every Feelgood movie right like the uh you know do these girls who are want to do wrestling and their father makes them do wrestling and pushes them and pushes them and pushes them so hard and then they become greatest then they become like you know get medals for the country yes they do has anybody made movies a list of like the remaining you know lack movies about fathers who push their daughters and then the daughters had mental breakdowns no this is does it does happen a lot of parents push their kids and the kids do not turn out to be like the fot sisters or do not turn out to be like any of the other
stars there are only 11 players in a cricket team 11 there are 11 million or maybe 11 CR people who are trying to get into that 11% this is true for all celebrities right most celebrities uh I mean there is a power law uh going on there the top few are extremely successful um right so um I mean don't take advice from successful people basically right this goes against all of the advice that we've heard so far look we have done an entire episode on learning from Jeff Bezos and you telling people don't take advice from successful people is not really a great so so you have to know which advice is actually useful that is better advice just because a
successful person oh I wake up every day at 5: a. and take a cold shower is probably not good advice yeah there might be other reasons why they take cold showers at 5:00 a.m. um you know take your last 100 rupees and take a train to Bombay and hang out in anderi and become an actor I mean worked for amjed Khan and probably worked for Shah ruk Khan but the median person who does this is still hanging out in andere and he's a waiter in some coffee shop right so but this not just cele business advice okay there is a book called good to Great by Jim Collins okay in the late 90s he picked 11 great
companies not just good great okay who beat their competition so badly uh right and then he looked at what are the things these great companies did and gave that as bus business advice makes sense the book sold 3 million copies at that time if you had bought stock in those 11 companies right that that set of stocks would have underperformed the S&P 500 uh for the next 10 20 years right in fact two of those companies went under and most of the other uh companies did badly this was just the entire book was survivorship bias just take a list of companies which have somehow managed to survive and assume that everything that they did was the
cause of them doing well so far right yeah the trend is now slightly shifted to learning from failures as well but even in that let's look at uh another example right so FedEx okay right everybody knows FedEx huge company all over the world uh so Fred Smith the founder in the early days uh they were doing badly right he was down to the last $55,000 and they needed to make a $24,000 payment for fuel right so on a Friday night he went to Las Vegas he gambled with the last 5K on Blackjack won 27,000 used that to make the payment company survived and then went on to become FedEx one of the top companies in
the world anybody who reads this and tells you take your last $5,000 and gamble it and make $27,000 is duping you that is something you should never do right but it works for Fred it might it will not necessarily work for you in general Founders taking excessive gambles is something we keep hearing again and again and again not realizing that this is a lot of survivorship bias right most business analysts advice analyzes only the successful companies does how many of them go and analyze the companies that failed not many because those companies are not around any anywhere right I mean it's very difficult to analyze companies that don't exist right the true failures are not around any ex
but there are there are still analysis of Founders who previously failed and still managed to succeed yeah and that's I mean just a you know slightly more convoluted form of Survivor bias right yeah because the founder still survived but let's take this is just all over the place medical advice right most nutrition advice most Babas with magical cures are you know have this post Haw shout out to the liver doctor if you haven't subscribed to his channel subscribe to his channel he does some amazing content both on uh YouTube and on I believe it was Leo tolto who said that if you have a disease and then somebody gives you a treatment intended to cure that disease and then if you do
get cured of that disease no power on Earth can convince you that it wasn't that medicine which cured you but you know the human body is amazing it cures itself so often that we don't realize that's what is happening and that's why Homeopathy lives on and on and on and on I don't want to say that you should ignore all advice especially from successful people right I mean Successful People do have traits that make them successful right uh I'm never going to say that oh hard work is all survivorship bias right hard work is better than Hardward make sure you are taking advice uh that is common to a lot of different fields for example make sure
that there is no survivorship bias there you know it it pains me a little bit that uh a lot of the advice uh ends up being uh squarely in survivorship bias category because um that that that drastically reduces the amount of advice that you can actually accept at times no so see what you have to do h is not just take advice blindly right especially if the advice seems a little counterintuitive okay if you look at the advice and it comes with an explanation that makes sense I am then check around if other people are saying yes I tried it and it worked then maybe there is a much higher chance and I'm I'm I'm
guessing a lot of life and a lot of advice anyways at the end of the day ends up being a game of Randomness in the end to extent because what work for others may or may not work for you even if it is great advice right yeah and see there is a lot of luck in success and most men flatter themselves that their great actions gave them success and don't realize the role of luck uh in their success right but um the reverse I would say is K right there is luck but you can increase the increase the chances of luck by working hard by focusing on is this the right process to follow focus on the process
not the result and try to think from first principles yeah right don't just blindly go well that person is very successful and they said that uh you should go for a run every 5 a.m. or something like that you should go for a run every morning at 5:00 a.m. it is good in general for health but any anyway the point here being uh yeah use kadikar by the way is an episode we did very early on in this series look for it we'll also put a link in the description but uh this is basically the Crux of the story today a lot of uh Randomness happens in life which gets ascribed as cause for things that happen afterwards
post talk fallacies survivorship bias keep that in mind every time you want to do something uh or you're looking to do something or something happens with you and you will have a very interesting life Shri naen thank you future IQ thank you for watching till the end if you like this episode check out these others you might like them also and please share with your friends I'm sure they will also like these thank you