Tag Archives: Financial adviser

The Survivorship Bias convinces people that psychics are real

Esther Inglis-ArkellBy Esther Inglis-Arkell via io9.com

There’s a simple bias that seems to endure. Anyone may accidentally fall into its trap. Once they do, they make it impossible for others to avoid doing the same thing. It’s called the Survivorship Bias, and it can be used to convince people of nearly anything.

The Set-Up

coin_tossLet’s say that I walked up to you in the street and told you I was psychic and I could prove it. The more fleet-footed of you would manage to keep walking, but I think I’d back a few of you into a corner and make you watch my demonstration. It’s a video of me walking into a room with a group of witnesses. One of the witnesses – picked at random – flips a coin. After he flips, but before he shows the coin to anyone, I guess whether it’s heads or tails. He reveals it to the witnesses. I’m right. The demonstration goes on, and each time I’m right.

You’re naturally skeptical, so you start questioning the set-up. I have sworn statements from all the witnesses that they were all pulled off the street. I even have the video of the selection process. I have a video of what I did all that day, showing that I didn’t set up anything that might clue me in on the coin flip results. After a lot of investigating, you determine that there’s no trick. I’m just correctly guessing the coin each time. You’re right. There isn’t a trick.

The Trick

cranac_250pxThere’s just hundreds days of set-up. On every one of those days, I have people go out and find witnesses, and people film me going about my business. On every one of those days, I walk into the room and start guessing. And on every one of those days, except for the day that I showed you, I guess wrong. I’ve showed you the one remarkable case, the one day that I guessed right.

To be fair, that’s more survivorship deception. But it does show how coincidence can, when taken out of context, look like something more. It’s been used by psychic researchers in the past. Test enough people and some of them will give answers that are coincidentally accurate. Then pretend that those people are psychics.

It’s also been used in economics. I had an economics teacher who joked that the best way to make millions as an investment adviser was to send out, to thousands of people, two variations of a letter. One would predict one trend in the stock market and the other would predict the opposite trend. Let the market takes its course. Strike the people that got the inaccurate letter from your mailing list. Then send out another set of letters. Repeat the pattern until you’ve got only a few clients, and each one of them is absolutely convinced that you’re infallible.

MORE – – –

%d bloggers like this: