shyam Dhar
KF Rookie
1. survivorship bias
Survivorship bias occurs when we focus too much on the survivors and overlook the failures, leading to incorrect assumptions.
I am warning you against making assumptions based on success or failure alone, and emphasizes the importance of considering the context and contributing factors to gain a more accurate understanding of the situation.
In finance,
survivorship bias is the tendency for failed companies to be excluded from performance studies because they no longer exist. It often causes the results of studies to skew higher because only companies that were successful enough to survive until the end of the period are included. For example, a mutual fund company's selection of funds today will include only those that are successful now. Many losing funds are closed and merged into other funds to hide poor performance. In theory, 70% of extant funds could truthfully claim to have performance in the first quartile of their peers, if the peer group includes funds that have closed.
Definition
Survivorship bias or survival bias is the logical error of concentrating on entities that passed a selection process while overlooking those that did not. This can lead to incorrect conclusions because of incomplete data.
Survivorship bias occurs when we focus too much on the survivors and overlook the failures, leading to incorrect assumptions.
I am warning you against making assumptions based on success or failure alone, and emphasizes the importance of considering the context and contributing factors to gain a more accurate understanding of the situation.
In finance,
survivorship bias is the tendency for failed companies to be excluded from performance studies because they no longer exist. It often causes the results of studies to skew higher because only companies that were successful enough to survive until the end of the period are included. For example, a mutual fund company's selection of funds today will include only those that are successful now. Many losing funds are closed and merged into other funds to hide poor performance. In theory, 70% of extant funds could truthfully claim to have performance in the first quartile of their peers, if the peer group includes funds that have closed.
Definition
Survivorship bias or survival bias is the logical error of concentrating on entities that passed a selection process while overlooking those that did not. This can lead to incorrect conclusions because of incomplete data.
