
How the Survivor Bias Distorts Reality - pandemicsyn
http://www.scientificamerican.com/article/how-the-survivor-bias-distorts-reality/
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OvidStavrica
By necessity, entrepreneurs are self-delusional.

Most are easily intelligent enough to realize how long their odds really are.
Furthermore, they have the intellect to appreciate the true effort they have
to make before they reach financial payback.

Any reasonable person with the math skills to visualize risk vs. reward will
usually walk away --but not the quintessential entrepreneur.

This is not a flattering trait. For this reason, it is rarely, if ever,
associated with successful entrepreneurs.

~~~
vdaniuk
Entrepreneurs != startup founders.

A successful developer, for example, starting their consultancy/agency has a
high chance of building a successful venture.

~~~
Retric
Small companies as in 5-50 people can be really stable and proffitable. Ramp
up in good times, lay off in bad etc. the trick is to proffitably get there a
soon as possible. Being a 1 person consulting shop is much more of a grind and
has less upside.

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cLeEOGPw
A good reminder about calculating statistics and making accurate predictions.

When analyzing why a group of objects (usually very small, like successful
companies) have a certain trait, it is not enough to find something all these
objects had in common and say that it was the reason. At bare minimum, you
have to look at all the rest of objects and confirm that they did not have
that thing in common too. And even that would not be enough. After finding
something ONLY these objects of interest have in common, you should test the
prediction on new objects whose outcome is not yet known and confirm the
accuracy.

It sounds really simple, but sometimes even scientific paper writers can't
resist urge to release "finding" that has hidden flaws like that.

~~~
rdancer
"Recent survey of Swiss centenarians found that 83.4% drank at least one large
glass of red wine per day, 86.7% included some form of light exercise in their
daily routine, and 99.7% were dead."

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peppery
The probability that an _average_ entrepreneur succeeds might indeed be
assessed fairly by observing that only one entrepreneur in a hundred ever
reaches the 1% of wealth or impact.

But this assessment itself seems to suffer from a bias of another sort--the
notion that entrepreneurial risk is uniformly distributed over the population
of entrepreneurs. Actually, there will be some startups whose risk will be
much lower than that of the "average" emerging company (due to the fact that
their venture idea satisfies some market need, discovered either by genuine
insight/ingenuity or by luck).

It is the belief--however appropriate--that one's own venture falls within
this enlightened category of diminished risk that propels founders to pursue
their ventures in the face of such an aggregate track record.

~~~
antome
I recall from some other study, that while "idea" start-ups are basically a
lottery, businesses which are working towards a product with apparent
benefits, an apparent market, and an apparent R&D road-map actually have an
impressively high success rate. Even if a bigger company beats you to the
punch, you can ride on their coattails.

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forgottenacc56
Job seeker: "Your company's employment test is stupid."

Employer: "Clearly it isn't stupid because every awesome person we have
employed has passed that test. In fact, the test is awesome and is the
_reason_ we have managed to build such an awesome team."

~~~
tokenadult
_Job seeker: "Your company's employment test is stupid."_

From the article: "Instead, Smith says, Collins should have started with a
list of companies at the beginning of the test period and then used 'plausible
criteria to select eleven companies predicted to do better than the rest.
These criteria must be applied in an objective way, without peeking at how the
companies did over the next forty years. It is not fair or meaningful to
predict which companies will do well after looking at which companies did
well! Those are not predictions, just history.'"

In the actual research on company hiring procedures, the correct research
procedure is used by giving tests BEFORE job seekers are hired, and then
seeing how they do as workers over time. Industrial and organizational (I/O)
psychologists have been doing this kind of research for about a century, in
countries all over the world, testing hundreds of thousands of workers in
numerous job categories in hundreds of workplaces in dozens of countries.
Hiring job-seekers based on work-sample tests and tests of the job-seekers'
cognitive ability reliably improves worker performance over the long term.
There is a FAQ on this topic[1] with links to the research literature you can
read for more details.

[1]
[https://news.ycombinator.com/item?id=4613543](https://news.ycombinator.com/item?id=4613543)

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traviswebb
re stock market: A common (and expensive) fallacy of beginners who think they
can beat the market with clever technical tricks is analyzing all of the
publicly-traded companies' history and divining patterns in trading and such.
This ignores, of course, the countless companies that have gone out of
business completely or have otherwise been de-listed from the exchanges.

In analyzing these trends, you're biased by looking only at the companies that
have done well enough to be on the current list. In this way it's particularly
insidious, because you're omitting the very data that might save you from
betting on a company that might be delisted.

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BraveNewCurency
"For garage-dwelling entrepreneurs to crack the 1% wealth threshold in
America, [...] for every wealthy start-up founder, there are 100 other
entrepreneurs who end up with only a cluttered garage."

So you are saying if I become an entrepreneur, I have a 1/100 chance of being
in the top 1%? Wow, that's great! Sign me up!

 _checks math_

Hey, wait a minute!

~~~
bbcbasic
If the cluttered garage is in Silicon Valley, then convert it into an
apartment and hey presto, real estate 1%-er.

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yyhhsj0521
S = succeed

C = with specific characteristics

What we need is P(S | C) = P(S ^ C) / P(C), but the best sellers mentioned in
the article instead address P(S ^ C)

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noahbradley
Along these lines, I'd recommend The Drunkard's Walk: How Randomness Rules Our
Lives [http://amzn.to/1NYgSQm](http://amzn.to/1NYgSQm)

Even very intelligent people seem to have far too many delusions about their
own competence or success.

~~~
gruez
If you're going to post a referral link, at least disclose it.

~~~
noahbradley
Oops, just hit the copy short link on Amazon and forgot to uncheck. My bad.

