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How the Survivor Bias Distorts Reality

scientificamerican.com

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Re: How the Survivor Bias Distorts Reality

#11

Post by 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.

Re: How the Survivor Bias Distorts Reality

#12

Post by bbcbasic »

BraveNewCurency wrote: post #10

"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!

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

Re: How the Survivor Bias Distorts Reality

#13

Post by antome »

peppery wrote: post #11

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…

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.

Re: How the Survivor Bias Distorts Reality

#14

Post by noahbradley »

gruez wrote: post #9
noahbradley wrote: post #7

Along these lines, I'd recommend The Drunkard's Walk: How Randomness Rules Our Lives http://amzn.to/1NYgSQm Even very intelligent people seem to have far too many delusions about their own competence or success.

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

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

Re: How the Survivor Bias Distorts Reality

#15

Post by rdancer »

cLeEOGPw wrote: post #3

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…

"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."

Re: How the Survivor Bias Distorts Reality

#16

Post by amelius »

OvidStavrica wrote: post #2

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. F…

Most entrepreneurs are, unfortunately, very much like gambling addicts. It is also unfortunate that the casinos (app stores) don't provide accurate information about risk vs. payoff.

> By necessity, entrepreneurs are self-delusional.

Unlike VCs, entrepreneurs have no spread of risk. It is important to realize that it is in the interest of the VC that the entrepreneur remains delusional.

Re: How the Survivor Bias Distorts Reality

#18

Post by vdaniuk »

OvidStavrica wrote: post #2

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. F…

Entrepreneurs != startup founders.

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

Re: How the Survivor Bias Distorts Reality

#19

Post by Retric »

vdaniuk wrote: post #18
OvidStavrica wrote: post #2

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. F…

Entrepreneurs != startup founders. A successful developer, for example, starting their consultancy/agency has a high chance of building a successful venture.

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.

Re: How the Survivor Bias Distorts Reality

#20

Post by jimhefferon »

peppery wrote: post #11

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…

> satisfies some market need, discovered either by genuine insight/ingenuity or by luck

.. or by looking at what has succeeded in the past and trying to learn from it, and extrapolate those lessons to the present.

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