It Is Easier to Buy and Sell Than Fry an Egg
Coincidences, selective data mining, and missing evidence can make luck look like competence. The birthday paradox illustrates how coincidences become more likely as opportunities increase.
THE IDEA
Some technical extensions of the survivorship bias.
- On the distribution of “coincidences” in life.
- It is preferable to be lucky than competent (but you can be caught).
- The birthday paradox.
- More charlatans (and more journalists).
- How the researcher with work ethics can find just about anything in data.
- On dogs not barking.
When to use it
Evaluating investment strategies by considering both successful and failed companies.
Interpreting scientific studies with multiple comparisons to avoid false positives.
Reflecting on personal achievements to distinguish genuine competence from fortunate circumstances.
Analyzing historical events where only the survivors are recorded (e.g., war heroes, business success stories).
FROM THEORY TO EVERYDAY LIFE
In practice
The Birthday Paradox
In a group of just 23 people, there is a 50% chance that two share the same birthday. This counterintuitive result illustrates how coincidences are more common than we think.
The Dog That Didn't Bark
In a Sherlock Holmes story, the crucial clue was the absence of barking. In data analysis, missing data or silent evidence can hide important patterns, leading to survivorship bias.
A MOMENT TO REFLECT
Put it to work.
Think of a time when you attributed success to skill when it might have been luck. How could you account for survivorship bias?
In what ways can data be misinterpreted due to missing data (the dog that didn't bark)?
How does the birthday paradox show that rare coincidences are actually common in large enough samples?
CONTINUE THE CONVERSATION
Source texts
- Fooled by Randomness The Hidden Role of Chance in the Markets and in Life (Nassim Nicholas Taleb)