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Survival bias is a type of logical error based on focusing on people or things that have passed a selection process and ignoring things that have not passed that process and neglecting them.
Survivorship bias, in other words, means paying attention to one or more successful samples from a set and ignoring the unsuccessful samples of the same set. In fact, seeing a successful example in a collection, you may come to the conclusion that if you act like that successful example, you will experience exactly the same result. This Survivorship bias is not a correct way of thinking at all.
Unfortunately, survival bias is one of the most common examples of bias. In the capital market and among people, we see a lot of survival error. Many people have fallen into this trap several times due to fear and greed. If these behavioral biases and prejudices in traders are not removed, it will lead to wrong investments and transactions and people will lose their entire capital. In the rest of this article, I will discuss what survival error is and how to reduce survival bias or survival bias.
Survival bias or survival error will generally lead to overly successful and optimistic conclusions; Because many failures are not considered in these conclusions.
The history of survivorship bias formation
When you focus on survivors or survivors of a group of people; In this case, you ignore the other important characteristics of the people in the group. To better understand the concept of survival bias or survival error, I will refer you to an example of World War II planes. The US military had a bulletproof material that could be used to cover parts of the plane;
Which, of course, did not include all the parts of the plane. They had a main method to determine the location of that material, which was based on the identification and investigation of the location of the bullet hits on the planes that were able to return safely.
Considering that these places showed the most bullet hits to the plane, it seemed like a logical reason to use the anti-bullet material in those parts. But in this decision, they suffered survival bias or survival bias; Because their criterion for determining the location of the bulletproof material was the salvaged aircraft that survived the war. This is while the correct and ideal solution was to put the anti-bullet material in the parts of the plane that were not damaged by the bullet; Because these places were definitely the main cause of plane crashes.
After realizing this mistake, the Air Force hired a statistician named Wald to investigate this issue. Mr. Wald found that reinforcing the parts of the plane that were hit the most by bullets was ineffective. Because only the saved planes were examined and the crashed planes were ignored.
Wald concluded that we should strengthen the parts of the plane that were less hit by arrows; Because the planes that have fallen were most likely hit by war arrows in these parts.
An example of permanence bias in the mindset of successful entrepreneurs
To better understand the concept of survival bias or survival error, I refer to the most successful entrepreneurs in the world. Bill Gates, Steve Jobs , Richard Branson , Elon Musk, Mark Zuckerberg and Mark Cuban are examples of these people. Undoubtedly, these entrepreneurs had important characteristics that were able to achieve these great successes. I mention these features below:
Rogue Thinkers
Successful entrepreneurs like those mentioned above have done different things. To achieve success, they did not follow a normal path and did not follow a specific formula. Also, when people dismissed them as crazy, they did not stop trying and continued on their path until they were able to reach the position of the most successful people in the world.
Extremists
These kind of successful people do not have a middle ground and their preference is to be polar. This means that instead of people having a neutral and neutral feeling towards them, they prefer to love them very much or hate them; exactly in two opposite poles. Arousing these intense emotions has a great impact on your success towards those around you; Because you attract more attention. Of course, this is as long as the number of your positive relationships is more than negative relationships.
risk taker
Looking at the lives of all the successful people mentioned, you will realize that all these people are risk takers. Although risk-taking has other aspects in addition to its positive aspects that cannot be ignored.
Ignored items
Most of the time, you are not aware why despite studying entrepreneurs who had the above mentioned characteristics, you still fail. Here you have survival bias or permanence; Because the above features cannot guarantee your success. They are just some minor aspects that can be devastating to consider alone.
Ignoring recommendations
It’s good to take risks and be rebellious in moderation. Standard business practices are standard for a reason that ignoring the advice of people who have come before you with experience can ruin you.
Misfortune
Perhaps, at first glance, risk-takers have been able to achieve success with this feature. But you can’t just consider them and ignore the millions of entrepreneurs who have failed because of risk.
Violators
When it comes to bipolarity, it’s likely that boredom becomes more attractive. New entrepreneurs who get too bold are likely to alienate early customers and investors and lose the familiarity to attract them.
A balanced approach
The things mentioned about survival bias and survival error do not mean that you should ignore the most successful and popular people and entrepreneurs in the world. It is clear that these people have done the right things to reach this position. In fact, the main point is to show how survival bias or permanence potentially leads to ignoring the negative and destructive results of these behaviors. The main key to success is having a balanced approach.
Methods to prevent or reduce survival bias
Some people are constantly blaming the market and making excuses for their unsuccessful investment results; Unaware that the reason for these failures is the survival bias and the survival error of the individual, which prevents a wise presence in the financial markets. To reduce survival bias, take the following methods in the financial markets, especially the cryptocurrency market:
- Education and awareness
- Detailed research
- Diversification and diversity in digital currency portfolios
- Development of a trading program
- Also pay attention to the project roadmap
- Limit receiving information
- Setting clear goals
- Using automation such as stop-loss or limit-loss orders
- Regular reviews
- Self-control
- Don't follow yesterday's winners
- Consult digital currency experts
- Accepting losses as learning opportunities
- High patience
- Awareness of opposing views and opinions
- In trading, suppose you have rented currencies
- Focus on detailed analysis instead of stories
- Loss is inevitable
- Do not go to the bottom of the line
