Survivorship Bias

Last month, Bill Gates revealed his favorite business book: Business Adventures, a collection of essays by the late journalist John Brooks, which chronicles business lessons learned, including those from large corporations like Ford and Xerox. “Brooks didn’t boil his work down into how-to lessons or simplistic explanations for success,” Gates noted.

The book is unusual because the business-publishing market and lecture circuit is almost exclusively driven by inspirational memoirs. After all, what entrepreneur risking everything on a startup wants to read a tale of disaster? The problem with the overwhelming focus on success is that valuable insights from failure are lost. This tendency is called “survivorship bias,” says author David McRaney, who writes and speaks about cognitive biases. “The advice business is a monopoly run by survivors. When something becomes a non-survivor, it is either completely eliminated, or whatever voice it has is muted to zero,” he says.

Winners may not really know why they came out on top – indeed, luck and timing probably played larger roles than most realise or will admit. “A stupid decision that works out well becomes a brilliant decision in hindsight,” McRaney says.

McRaney tells people to correct for the natural human bias towards happy stories by seeking out examples of failure and learning from them. “When you’re looking for advice from a person who’s only telling you what to do—but never saying what not to do—you’re getting a biased view of the world.”

A new study suggests that people who try and fail at business are far more likely to succeed if they pick themselves up and start over again. Maybe if more entrepreneurs confessed to failure—and more would-be entrepreneurs listened to them instead of succumbing to survivorship bias—the pitfalls of startup ventures could be avoided more often.

Success, as McRaney defines it, is “serially avoiding catastrophic failure while routinely absorbing manageable damage.”

Do you have a cautionary tale to tell?

Adapted from an article by Karen E Klein, Bloomberg Businessweek