Earlier this month we started an occasional series for the blog on cognitive biases and how they trip us up as founders, investors, and humans. There are 50 or so biases worth considering. Our first post covered the Sunk Cost Fallacy and the Curse of Knowledge. This week we’ll take a look at the Law of Triviality and Survivorship Bias.
The Law of Triviality
The Law of Triviality, also referred to as “Bikeshedding”, was first identified by C. Northcote Parkinson in 1957. In his example, the people tasked to build a nuclear power plant spent the majority of their time on unimportant issues like what color to paint the bicycle shed, rather than concentrating on the critical details of designing a nuclear power plant.
The bottom line is we waste time on trivial issues while failing to focus on critical tasks. Like moths to the flame, we humans nearly always gravitate to the trivial; which is one reason most corporate meetings are brutal and a waste of time.
The law also notes that part of the time spent on an agenda item is inverse to the amount of money involved. Important decisions are made by the lowest common denominator, diluting valuable resources as management avoids the complexities of the more important items.
Survivorship Bias
Survivorship bias is a form of selection bias whereby persons or things that made it through a selection process of some kind are represented in a sample, and those that didn’t make it through the process are overlooked, usually because they lack visibility in the data set. This often leads to false conclusions when those failures are ignored.
People are prone to believe success within a group is due to some special attribute rather than coincidence; correlation = causation. In investing, this tendency for failed companies to be excluded from studies because they no longer exist skews performance results.
Author Nassim Taleb refers to the data left out due to survivorship bias “silent evidence”.
In what may be the earliest reference to survivorship bias, Diagoras of Melos (5th century BC) reportedly had a friend try to convince him of the existence of the gods by pointing out how many paintings there were of people being saved from storms at sea by “praying to the gods”. But Diagoras replied that there were no paintings of those who prayed and were also shipwrecked and drowned at sea.
Abraham Wald, a hero of operational research, accounted for survivorship bias when tasked to reduce bomber losses to enemy fire. He surmised the aircraft that returned could take damage to the areas that had received fire, so he recommended armoring the aircraft in the locations where “the bullets weren’t”.