Dictionary of Investment Psychology: Survivorship Bias—Judging the Whole Based Only on Visible Success Stories
Key Points
Survivorship Bias = The psychological tendency to judge the whole based only on "success stories" or "surviving cases" that are easy to see.
In the market, successful investors, stocks that have grown, and methods that have survived stand out, making it easy to feel that "it seems reproducible" while ignoring the failures that have become invisible.
When to Use
Pause the moment you feel, "This method looks very easy" or "If I do what this person did, I will succeed too."
Check if that judgment is based only on the stories of those who succeeded. Make your judgment after including
those who tried the same method but did not succeed or quit along the way.
1. Definition
Survivorship bias is a cognitive bias where one judges the overall trend based only on things that have survived or succeeded. In investing,
winners who continue to post for a long time
famous stocks that have multiplied in value
success methods that are still being talked about
are easy to see.
On the other hand,
people who exited along the way
stocks that did not grow and disappeared
methods that stopped working
are easy to lose sight of.
In other words, by the time you see something, you may already be looking at a landscape that has been "sifted."
2. Situations Where It Occurs
When you only see posts on social media from people who have significantly increased their assets.
When you look at stocks that rose significantly in the past and feel, "I wish I had held onto them."
When you look at long-standing investment books or classic methods and think, "This seems safe."
When it seems reproducible just by looking at the "current statements" of successful individual investors.
3. Where it distorts investment
Overestimating success rates: Judging only by winning examples and underestimating the difficulty of the market.
Overlooking risks: Underestimating the magnitude of pain because failed examples that disappeared along the way are not visible.
Misunderstanding reproducibility: Easily feeling that the person's talent, era, market conditions, and luck can be replicated by oneself.
Lax inspection of methods: Being satisfied only with stories that went well and failing to see the conditions or limitations.
The fear of survivorship bias lies not in "having hope" itself, but in creating expected values while leaving out unseen losses and dropouts.
4. Self-check (3 questions)
Check how many of the following questions apply to you. If any apply, there is a high possibility that survivorship bias has entered your judgment process.
I look at the stories of successful people, but I don't know the number of people who failed by doing the same thing.
I can talk about the commonalities of stocks that went up, but I haven't looked at the commonalities of stocks that disappeared.
The basis for feeling that "this method can win" is based only on prominent success stories.
5. How to keep your distance
1. Look for the "unseen side" first
When you see a success story, always check:
How many people failed?
Were there people who quit halfway through?
Can it be reproduced under the same conditions?
The moment you see a "winning story," go look for a losing story.
② Check the whole picture
Do not judge based solely on "amazing results." What is important is
how many out of how many
how many stocks out of how many
which period out of how many years
it is.
The way to be resistant to survivorship bias is to check the total numbers.
③ Break down the content of the success
Do not imitate success stories exactly as they are. Whether that successful result was
due to actual ability
due to favorable market conditions
due largely to chance
should be viewed separately.
Rather than the result of "it went well," it only becomes useful when you break downwhat was actually effective.
6. Neru's Pocket Memo
Stories about people who are doing well or methods that made a lot of money are definitely attractive, aren't they? When I read them, I feel a bit more positive, thinking, "I could do that too."
But in my case, if I jump in with that momentum, I've realized many times later that "all I was seeing were the 'survivors'..." (laughs)
The words of those who won are very helpful. However, I feel that the accuracy of whether those words are truly usable increases significantly only after imagining the losses and dropouts that aren't visible.
Whenever my heart is moved by a prominent success story, I try to look for the "vanished side." That extra step helps calm my excitement a little (^-^)
■ Related note
・[What I did to reach 50 million yen in assets] Part 1: 10 consecutive plain moves (Action log)
・The easiest way to choose stocks