What is survivorship bias & how does it affect an entrepreneur?

In this article, I discuss the concept of ‘survivorship bias’. In the last article, I defined risk as the possibility of total loss. I introduced probability distribution and the concept of ‘tails’ that signify extreme events. We discussed the income probability distribution of a government bureaucrat, consultant, mid level manager and an entrepreneur and and understood why tails get fatter as we move from a bureaucrat to an entrepreneur. We then talked about the risk-reward curve & showed that in the realm of probability, this curve is actually a collection of different probability distribution curves. As we increase the risk profile, we end up having fatter and longer tails. We then introduced the concept of ‘systematic mis-pricing’ of risk – how entrepreneurs in particular tend to romanticize the probability curve. This leads to an underestimation of risk and overestimation of rewards. A big cause of this systematic mis-pricing is what we call the ‘survivorship bias’. That is the subject of discussion of this article.

What is survivorship bias?

When I lived in New York City, I noticed that most people in Manhattan had fit bodies, with low fat & high muscle content. I also saw impeccably dressed men and women on the streets. I was a thin guy with negligible fashion sense & I couldn’t help but feel a bit low on self-esteem and confidence during this time. It took me a while to realize that I had fallen victim to the ‘survivorship bias’. So what is the survivorship bias?

Survivorship bias is a mis-judgement that happens when you encounter survivors more often than you encounter losers. When you mistake a small sample of observations to be the universe of possible observations, you fall victim to survivorship bias.

Lets say we have a white box – this represents a universe of all possibilities that can happen over a given time span. Event to the right denotes a success and event to the left denotes a failure. Now suppose you are blindsided to all the events on the left side – lets say someone sets up a Chinese wall in between and you can’t see the events to the left of this wall. In effect, this Chinese wall is shielding you from observing failures.

You start believing that the events you see represents the entire universe- since your observed set of possibilities is only a small subset of the universe of possibilities, any decision you take about the future based on your observed universe has a intrinsic bias towards success. 
If we go back to our probability distribution curve and consider only the points on the right tail and plot a distribution, you again magically get a distribution that looks like a bell curve. In reality, this curve is actually a ‘skewed distribution’. It is skewed because it has ignored a vast number of possibilities at the centre and the left of the original distribution As a result, you get a new distribution where the worst case scenario is also ‘moderately positive’ and the average case is actually a best case scenario of the original distribution.

Skewness in probability distribution due to survivorship bias leads to a classic mis-judgment of overestimating the best case and (more fatally) underestimating the worst case.

Changing perception of the self

Lets assume Adam is a newly married banker who makes $400k USD annually. Adam & his wife Jenna stay in a condo in Jersey city. Adam stays in a quiet neighbourhood and the couple has a relatively pleasant lifestyle. Adam is in the top 1% of income distribution curve in the United States where the median income is 70,000$.

Adam takes an offer as a CFO of a tech startup in Silicon Valley at the same salary and the couple moves to California. Adam now finds himself in the top 5% of the people in Silicon Valley whose median income is 140,000$.

Couple has a son and Jenna wants them to move to Atherton town in San Mateo because they have the better schools in that area. Median income in Atherton is 525,000$ USD. Suddenly Adam finds himself in the bottom 50% of the Atherton families. Adam & Jenna make friends with other parents at their son’s school and find themselves miserable when trying to match the living standards of the other parents.

So a happy couple in Jersey City became slightly insecure after going to Silicon Valley and totally insecure after ending up at Atherton. How can the same person, with the same earning capacity end up from confidence to misery. Answer lies in survivorship bias. Perception of self changes when one skews a distribution that sees success more often than failure. This is what happened to me when I was in Manhattan.

Perception of the self changes when one skews a distribution that sees success more often than failure

Capability v/s survivorship bias

Since the stakes for an entrepreneur are much higher, survivorship bias can cause serious mis-judgement and in some cases, can lead to an existential crisis for an entrepreneur. Let’s see how.

If you plot the capability of a person v/s survivorship bias, you will see an interesting curve. More capable a person, more likely that person will face survivor ship bias. This is simply because a capable person ends up putting himself/herself in a place that attracts other capable people. For example, a guy who topped Math at school consistently is likely to end up in the Math or Economics department at Harvard or Yale or Stanford where he will encounter people better than him at Math.

If you plot growth v/s time, a person having a strong survivorship bias expects consistent growth over time.. Why? Because he has seen other people who got consistent growth over time. What he hasn’t seen and therefore doesn’t know is that there are a lot more people out there who have seen little growth over time. So when reality happens in the form of much slower growth, he is angry and frustrated at the gap between his expectations and reality. 

Let’s say there are two entrepreneurs A and B – B is much more capable than A at a particular task. B is more likely to have a higher survivorship bias because B is more likely to end up in a network of people who are more capable than he is. Since B has higher survivorship bias, B will also have a steeper expectation of growth over time compared to A. And since life is not always fair, B and A could end up having a similar growth curve in reality.

As a result, B ends up with a much bigger gap than A. B is more restless, desperate and angry at himself for not being more successful than A. Chances are B calls it quits or takes unnecessarily large risks to compensate for the lost growth. This could lead to existential challenges for B. 

An awareness of survivorship bias can trigger positive emotions when B encounters a large gap between expectation and reality. Such positive emotions could lead to persistence, inspiration,  humility and gratitude.  A lack of awareness of survivorship bias makes one a victim of negative emotions such as envy, jealousy, frustration and anger. These emotions can drive a person to make wrong and mindless decisions. That is why it is important to understand this concept & constantly filter out such a bias from decision making.

Awareness of survivorship bias can trigger positive emotions of humility, gratitude, persistence and inspiration. Lack of awareness trigger negative emptions such as jealousy, envy, anger and frustration

In the world we live in, some form of survivor ship bias is everywhere making many a victim of poor decision making. From the aura of Ivy League Schools, to the freshly minted Unicorns., to the craze of bitcoin investment, to how we want to look, who we want to marry – we have survivorship bias everywhere. 


  1. Survivorship bias is when we focus on success & ignore failure
  2. Bias changes our perception of self. Greater the bias, greater is the gap between expectation and reality
  3. People who are more capable are more likely to become victims of survivorship bias
  4. Awareness of bias leads to positive emotions. Lack of awareness creates negative emotions like fear, envy, jealousy and anger.