Survivorship Bias

[UmarMakhzumi]

Quote

Survivorship Bias - Nassim Nicholas Taleb

Marc lives on Park Avenue in New York City with his wife Janet and their three children. He makes $500,000 a year, give or take a boom or a recession - he does not believe that the recent spurt in  prosperity is here to last and has not mentally adjusted yet to his recent  abrupt rise in income. A rotund man in his late forties, with spongy features that make him look ten years older than his age, he leads the seemingly comfortable (but heckled) life of a New York city lawyer. But he is on the quiet side of Manhattan residents. Marc is clearly not the  man one would expect to go bar-hopping or attend late night Tribecca and Soho parties. He and his wife have a country house and a rose garden and tend to be concerned, like many people of their age, mentality, and condition, with (in the following order) material comfort, health, and status. Weekdays, he does not come home until at least 9.30 p.m. and, at times, he can be found in the office at close to midnight. By the end of the week, Marc is so fatigued that he falls asleep during their three-hour drive to “the house”; and Marc spends most of Saturday lying in bed recovering and healing. 

Marc grew up in a small town in the midwest, the son of a quiet tax accountant who worked with sharp yellow pencils. His obsession with sharpness was so strong that he carried a sharpener in his pocket at all times. Marc exhibited very early signs of intelligence. He did extremely well in high school. He attended Harvard College, then Yale Law School. Not bad, one would say. Later his career took him to corporate law, where he started working on large cases for a prestigious New York law firm, with barely enough hours left for him to brush his teeth. This is not too much an exaggeration, for he ate almost all of his dinners in the office, accumulating body fat and Brownie points towards his partnership. He later became a partner within the usual seven years, but not without the usual human costs. His first wife (whom he met in college) left him, as she was tired of an absentee lawyer husband and weary of the deterioration in his conversation - but, ironically, she ended up moving in with and later marrying another New York lawyer, probably with a no-less flat conversation, but who made her happier. 

Marc’s body became progressively flabbier, and his tailored suits needed periodic visits to the tailor, in spite of his occasional crash diets. After he got over the depression of the abandonment, he started dating Janet, his paralegal, and promptly married her. They had three children in quick succession, bought the Park Avenue apartment, and the country house. Janet’s immediate acquaintance is composed of the other parents of the Manhattan private school attended by their children, and their neighbors at the co-operative apartment building where they live. From a materialistic standpoint, they come at the low end of such a set, perhaps even at the exact bottom. They would be the poorest of these circles, as their co-op is inhabited by extremely successful corporate executives, Wall Street traders, and high-flying entrepreneurs. Their children’s private school harbors the second set of children of corporate raiders, from their trophy wives - perhaps even the third set, if one takes into account the age discrepancy and the model-like features of the other mothers. By comparison, Marc’s wife Janet, like him, presents a homely country-home-with-a-rose-garden type of appearance. 

Marc’s strategy of staying in Manhattan may be rational, as his demanding work hours would make it impossible for him to commute. But the costs on his wife Janet are monstrous. Why? Because of their relative nonsuccess - as geographically defined by their Park Avenue neighborhood. Every month or so, Janet has a crisis, giving in to the strains and humiliations of being snubbed by some other mother at the school where she picks up the children, or another woman with larger diamonds by the elevator of the co-op where they live in the smallest type of apartments (the G line). Why isn’t her husband so successful? Isn’t he smart and hard working? Didn’t he get close to 1600 at the SAT? Why is this Ronald Something whose wife never even nods to Janet, worth hundred of millions when her husband went to Harvard and Yale and has such a high I.Q., and has hardly any substantial savings? 

We will not get too involved in the Chekovian dilemmas in the private lives of Marc and Janet, but their case provides a very common illustration of the emotional effect of survivorship bias. Janet feels that her husband is a failure, by comparison, but she is mis-computing the probabilities in a gross manner - she is using the wrong distribution to derive a rank. As compared to the general U.S. population, Marc has done very well, better than 99.5% of his compatriots. As compared to his high-school friends, he did extremely well, a fact that he could have verified had he had time to attend the periodic reunions, and he would come at the top. As compared to the other people at Harvard, he did better than 90% of them (financially, of course). As compared to his law school comrades at Yale, he did better than 60% of them. But as compared to his co-op neighbors, he is at the bottom! Why? Because he chose to live among the people who have been successful, in an area that excludes failure. In other words, those who have failed do not show up in the sample at all, thus making him look as if he were not doing well at all. By living on Park Avenue, one does not have exposure to the losers, one only sees the winners. As we are cut to live in very small com- munities, it is difficult to assess our situation outside of the narrowly defined geographic confines of our habitat. In the case of Marc and Janet, this leads to considerable emotional distress; here we have a woman who married an extremely successful man but all she can see is comparative failure, for she cannot emotionally compare him to a sample that would do him justice. 

The above is an excerpt from book Fooled by Randomness by Nassim Nicholas Taleb. You can and should buy the book from:

 

https://www.amazon.com/Fooled-Randomness-Hidden-Markets-Incerto/dp/0812975219