Survivorship Bias


Companies that don’t exist anymore are not included in historical market performance reviews. When trying to predict the future from the past, the survivorship bias is an ubiquitous experimental flaw.

In The Black Swan financial statistician and author Nassim Nicholas Taleb calls this data clouded by survivorship bias the “silent evidence”.

The issue of survivorship bias is also evident in business. As Daniel Kahneman puts it in Thinking, Fast and Slow: “A stupid decision that works out well becomes a brilliant decision in hindsight.”

Most entrepreneurs—if not all—don’t know what they’re doing. They don’t have a meticulous step-by-step plan to follow. Yet, we tend to try to emulate the “recipe” used by the few ones that achieved success.

In most cases, these successful entrepreneurs will create an after-the-fact narrative to explain how their vision turned into reality, omitting to admit the part luck and circumstances played in their success. And, because of the survivorship bias and our love for good stories, we tend to believe them.