Housefull Economics

Beware of the Survivor

Our weekly explainer on economics using lessons from popular culture. In Installment 32, Mark Zuckerberg and Gurukant Desai illustrate the Survivorship Bias.

Early on in Mani Ratnam’s 2007 film Guru, Gurukant Desai defies his schoolteacher father and leaves his village and education behind to go to Turkey and start working. He later opens his own business and becomes a successful businessman. Desai’s character is based on Dhirubhai Ambani, who dropped out of school and, through hard work and perseverance, built one of India’s largest business empires.

In The Social Network (and in “real life”) Mark Zuckerberg drops out of Harvard and goes on to set up Facebook and become the world’s youngest billionaire. There are many other examples of successful entrepreneurs who dropped out of school or college: Bill Gates, Steve Jobs, Richard Branson, the list goes on. Recently, Vineet Kumar Singh, the 38-year-old star (and screenplay writer) of the hit film Mukkabaaz, spoke of his years of struggle in the Hindi film industry before finally making it big. These form the basis of many an inspirational speech that paint a romantic halo around the notion of dropping out of school and struggling for many years without giving up. After all, if these guys could make it, why can’t you?

That line of thinking is flawed, and illustrates the Survivorship Bias. There are millions of school and college dropouts. Only a small handful have made it big. Thousands, if not tens of thousands, of aspiring actors struggle for decades, but only a few ever get to be the lead in a film.

Survivorship Bias is a common logical error of focusing on people or things that have made it past some selection process, and ignoring those that did not. We all know about start-ups that succeeded like Apple, Facebook, Amazon, Wikipedia etc. How many remember the ones that failed: Webvan, Jennicam, Nupedia?

Of course we prefer to hear the feel-good stories and like to ignore the failures. But ignoring Survivorship Bias has some insidious effects. We may overestimate the performance of a mutual fund manager because we only see his record based on his successful funds, and ignore those funds which failed or closed down. If we counted those, we may not invest with that mutual fund manager.

During wars, researches focused on fixing issues on returning fighter planes by recommending that armor be added to the parts showing the most damage. Statistician Abraham Wald noted that only aircraft that survived their missions were considered. The aircraft that went down in enemy fire were, of course, not present for consideration! Wald suggested that maybe undamaged areas on planes that returned should be reinforced, because if those were hit, the aircraft would have gone down.

So, the next time when you hear of a success story, spare a thought for those who did not survive. Remember that people who ignore survivorship bias can be convinced that psychics and other charlatans are real!

About the author

Yazad Jal

Yazad Jal is Fellow, Economic Policy at the Takshashila Institution.
Previously he worked for McKinsey and IBM in the United States and
before that in the non-profit sector in India, last serving as CEO of
Praja Foundation in Mumbai. Yazad has an MBA from Yale University and
a BA (Econ) from St. Xavier’s College, Mumbai University.