Reverse Survivorship Bias


DEFINITION of 'Reverse Survivorship Bias'

The tendency for low performers to remain in the game, while high performers are inadvertantly dropped from the running. This bias can be applied to a variety of vehicles ranging from the housing market, stock indexes and even investorss capabilities. The phenomenon occurs when calculating performance based solely on past performances, without taking into account extenuating circumstances such as the economic standpoint at which decisions were made.

BREAKING DOWN 'Reverse Survivorship Bias'

An example of reverse survivorship can be observed in the Russell 2000 index that is a subset of the 2000 smallest securities from the Russell 3000. The loser stocks stay small and stay in the small cap index while the winners leave the index once they become too big and successful.

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