Scientific American: The Perils Of “Survivorship Bias”

An interview withKaty Milkman: Can you explain what survivorship bias is? Imagine you got a letter in the mail that says, “Hey Katy, I have a new stock-picking trick. And since I know you don’t trust me yet, I want to tell you look at Whatever Incorporated tomorrow, and it’s going to go up.” You say, “Well, I don’t know.” But you look at it, and it went up. But anyone can get lucky. So the next week, you get another letter saying, “Tomorrow, I want you to look at Johnson Incorporated, and it’s going to go down.” Now you’re intrigued. You look at Johnson Incorporated, and it does go down. Now you’re waiting for the third letter. It does come, and it’s exactly right. Now the person says, “If you’re interested in having me as your advisor, you should call me.” Do you see where all this is headed? This is actually a thing that was run in the 1940s or maybe the 1930s. They sent a bunch of random guesses to 10,000 people. Half the time, they were right. So then, to that half of the people, they sent another bunch of random guesses, which, half the time, were right. Read the full interview here on Scientific American, and listen to the full interview on Apple Podcasts, Google Podcasts, and Spotify from this link.