What is Survivorship Bias?

We often hear success stories from people who do something risky like business and learn new things. This inspires us to do the same thing as the characters in the story. However, we forget that many people have done the same thing as this character but failed and we may be part of those people who failed. This is called survivorship bias. Survivorship bias is a logical error that occurs when someone focuses on those who succeed while ignoring those who fail. This bias can lead to inaccurate assessments or analyses because it need to take into account information from those who failed.

During World War II, British statistician Abraham Wald was tasked with analyzing damage to aircraft returning from missions to strengthen protection. Returning planes showed damage in certain areas, and many argued for reinforcing these damaged areas. However, Wald realized that the analysis ignored non-returning planes, which may have been damaged in areas not visible on the returning planes. So, he suggested reinforcing undamaged parts of returning planes, as planes hit in those areas might not make it back.

There are several steps you can take to avoid survivorship bias. Such as collecting and analyzing data from those who failed and succeeded, analyzing all influencing variables and the reasons why these variables can influence the results, studying other people's failure cases and how to avoid failure. 

Comments

Post a Comment

Popular posts from this blog

What is a Derivative Contract?

A derivative contract is a financial agreement between two parties whose value depends on or comes from an underlying asset. These assets include stocks, bonds, commodities, currencies, interest rates, and market indices. Derivatives are often used for hedging, speculation, or arbitrage.  Types of Derivative Contracts 1. Futures Futures are contracts that obligate buyers and sellers to carry out asset transactions at a predetermined price in the future usually traded on futures exchanges. 2. Options An option is a contract that gives the holder the right to buy or sell an asset at a certain price before or on the expiration date. 3. Swaps Swaps are agreements between two parties to exchange cash flows or assets within a certain period. For example, exchanging fixed interest rates for floating interest rates (interest rate swaps) or currency swaps. 4. Forwards This contract is similar to futures but is done privately without going through an exchange (over-the-counter). This makes i...
Read more

Consejos para Dejar de Fumar

Image
Fumar puede aumentar el riesgo de padecer diversas enfermedades, como trastornos cardíacos, accidentes cerebrovasculares, cáncer de pulmón y enfermedades respiratorias. Además, fumar también tiene un impacto real en la situación económica. El gasto diario en la compra de tabaco puede parecer insignificante, pero si se acumula a lo largo de los años, la cantidad puede ser muy elevada. Por eso, hoy en día muchas personas deciden dejar de fumar. A continuación te ofrecemos algunos consejos: 1. Establece Una Razón de Peso Determina la razón principal por la que quieres dejar de fumar, por ejemplo, por tu salud, por tu familia o para ahorrar dinero. Una razón clara puede servirte de motivación cuando vuelva a surgir el deseo de fumar. 2. Reduce el Consumo de Forma Gradual A algunas personas les resulta más fácil dejarlo reduciendo el número de cigarrillos poco a poco. Por ejemplo, si sueles fumarte un paquete al día, intenta reducirlo poco a poco hasta dejarlo por completo. 3. Identifica lo...
Read more

Why Are Most Major Cities Located on the Coast?

Image
If you look at a world map, you will find that many of the largest cities are situated by the sea or not far from the coastline. Cities such as London, Singapore, Tokyo, Shanghai, New York, and Jakarta developed in areas with access to the sea. This phenomenon is no coincidence. For thousands of years, coastal areas have been the most strategic locations for establishing centers of trade, government, and civilization. So, why do major cities tend to grow along the coast? 1. The Sea Was the First Transportation Route Before the advent of highways, railways, and airplanes, the sea was the most efficient transportation route for moving both people and goods. Ships could carry far heavier loads than the land-based transport of that era. Consequently, areas with ports evolved into hubs where traders, residents, and economic activities converged, eventually expanding into cities. 2. Easier Access to Global Trade Coastal cities enjoy an advantage due to their direct connectivity to other regi...
Read more