DEFINITION of 'Reverse Survivorship Bias'

Reverse survivorship bias describes a situation where tendency low performers remain in the game, while high performers are inadvertently dropped from the running. This is the opposite of survivorship bias, which occurs when only strong and successful members of a group survive and remain in the group. This often occurs when comparing performance of portfolio managers. Survivorship bias pushes returns higher because only the exceptional managers stay in business and are able to be measured. The bad managers cannot be measured because they no longer exist.

BREAKING DOWN 'Reverse Survivorship Bias'

Reverse survivorship bias can be applied to a variety of vehicles ranging from the housing market, stock indexes, and even investors' behaviors and capabilities. Whereas survivorship bias can bias returns or results of a group upward, reverse survivorship bias can have the opposite effect and push the overall return of the group downward. This is due to the best performers, who would've lifted overall results, being dropped from the group. 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.

An Example of 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.

  1. Sample Selection Bias

    Sample selection bias is a type of bias caused by using non-random ...
  2. Bias

    Biases are human tendencies that affect our behavior and perspective, ...
  3. With Benefit of Survivorship

    With benefit of survivorship describes a situation in which ownership ...
  4. Dedicated Short Bias

    Dedicated short bias is a strategy where a hedge fund maintains ...
  5. Confirmation Bias

    Confirmation bias suggests that investors seek out information ...
  6. Outcome Bias

    Outcome bias is an error made in evaluating the quality of a ...
Related Articles
  1. Investing

    Behavioral Bias: Cognitive Versus Emotional Bias in Investing

    We all have biases. The key to better investing is to identify those biases and create rules to minimize their effect on investing decisions.
  2. Financial Advisor

    8 Common Biases That Impact Investment Decisions

    Behavioral biases hit us all as investors and can vary depending upon our investor personality type.
  3. Investing

    9 Cognitive Biases That Affect Your Business

    Human beings often act irrationally when it comes to business decisions. Behavioral finance explains the difference between what we should do and what we do.
  4. Investing

    Why Hedge Funds Do Not Belong in Your Portfolio

    Considering hedge funds as part of your investment strategy? Make sure you understand all the risks and fees involved.
  5. Financial Advisor

    Advisors and the Behavioral Finance Dilemma

    Sometimes advisors can fall prey to the same behavioral finance biases as their clients.
  6. Investing

    Why Women Are Better Investors Than Men

    Research shows that women are better investors than men.
  7. Retirement

    Choosing How and When to Receive Pension Benefits

    If you are lucky enough to have a pension when you retire, critical decisions on how and when to receive payments need to be made.
  8. Investing

    Why Retail Reports Like Macy's Matter

    Macy's surprised traders with better than expected results. Now it's up to the rest of the sector to maintain the momentum.
  1. Why would a company perform a reverse stock split?

    A company performs a reverse stock split to boost its stock price by decreasing the number of shares outstanding, which typically ... Read Answer >>
  2. What Are the Different Types of Reverse Mortgages?

    Discover the three different types of reverse mortgages available to homeowners aged 62 and older. Read Answer >>
Trading Center