Survivorship Bias or Why the Rich Feel Poor

Fooled by RandomnessMarc lives on Park Avenue in New York City, with this 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 pm 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’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 hundreds of millions when her husband went to Harvard and Yale and has such a high IQ, 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 ecomtional 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 US 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 succesful, 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 communities, 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.

—Nassim Nicholas Taleb
Fooled by Randomness

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