We tend to focus on what’s successful and ignore what isn’t.  We focus on the known, the here and the now while forgetting that which previously occurred.  We don’t learn from failure.  We don’t learn from mistakes.  We’re guilty of survivorship bias.

We’ve elevated the path to success (or those we believe are causal) to such a level that the process has become religion.  Lose 10 lbs in 2 weeks.  How I turned $100 into $85,000 trading from home.  The “successes” go on and on and on.

Here’s an illustration from Warren Buffett’s 1984 article entitled The Superinvestors of Graham-and-Doddsville:

Let’s assume we get 225 million Americans up tomorrow morning and we ask them all to wager a dollar.  They go out in the morning at sunrise, and they all call the flip of a coin.  If they call correctly, they win a dollar from those who called wrong. Each day the losers drop out, and on the subsequent day the stakes build as all previous winnings are put on the line.  After ten flips on ten mornings, there will be approximately 220,000 people in the United States who have correctly called ten flips in a row.  They each will have won a little over $1,000.

Now this group will probably start getting a little puffed up about this, human nature being what it is.  They may try to be modest, but at cocktail parties they will occasionally admit to attractive members of the opposite sex what their technique is, and what marvelous insights they bring to the field of flipping.

Assuming that the winners are getting the appropriate rewards from the losers, in another ten days we will have 215 people who have successfully called their coin flips 20 times in a row and who, by this exercise, each have turned one dollar into a little over $1 million. $225 million would have been lost, $225 million would have been won.

By then, this group will really lose their heads.  They will probably write books on “How I turned a Dollar into a Million in Twenty Days Working Thirty Seconds a Morning.”  Worse yet, they’ll probably start jetting around the country attending seminars on efficient coin-flipping and tackling skeptical professors with, “If it can’t be done, why are there 215 of us?”

By then some business school professor will probably be rude enough to bring up the fact that if 225 million orangutans had engaged in a similar exercise, the results would be much the same — 215 egotistical orangutans with 20 straight winning flips.

So how to avoid failing victim to survivorship bias . . . to stop drawing (often frustrated and unhealthy) comparisons between the “successful” and ourselves?  Here are some ideas:

  • As Warren Buffett’s anecdote illustrates statistics and the law of large numbers are important underpinnings in outcomes.  As such be highly skeptical of individuals – of gurus if you will – that appear to provide “answers” and “secret formulas” for success, happiness, wealth, etc.
  • Don’t copy or imitate others.  Understand that what works for one person may not work for another.  For every Steve Jobs there are thousands of failures walking around in jeans and black turtlenecks.
  • Don’t overestimate skill and hard work.  Don’t downplay luck.  Randomness often plays a substantial role in achieving success despite the “correct path” being clear in hindsight.