The following summary was written by Frank Voisin, who regularly writes for Frankly Speaking. Recently, Frank sold four restaurants and returned to school to complete a combined LLB/MBA.
Taleb uses this chapter to illustrate the Survivorship Bias in several different common situations.
Two important things come from the examples in this chapter:
1. A large group of poor performers will eventually yield a few performers that appear to be quite skillful due to their success. This is simply volatility from the norm, but is often confused for skill.
2. Success is more greatly correlated with the number of people in the original pool than the skill of the players (since, the larger the pool, the longer the survivors had to survive, and the more successful they will appear as a result.)
Life is unfair in a nonlinear way. Small advantages often translate into disproportionately large payoffs, or simple randomness can lead to the same thing without any advantage at all.
Nonlinearity is the disproportionate result resulting from a proportionate increase in force. Adding sand to a sandcastle tower, growing at a linear rate, until suddenly one extra grain of sand causes it to all come crumbling down – that is the nonlinear result.
The reason life is nonlinear is that past success increases the probability of future success, due to a multitude of reasons (network externalities being one). Each step on our path is not independent
The nonlinearities of life cause us to confuse sucess with skill. Nonlinearities allow tiny amounts of randomness to build ever greater success (or failure), confusing us into thinking that the tiny amount of randomness was ineffectual.
