I know this guy who was successful (otherwise known as Type I errors)

One anecdote does not make a proof.

The danger: humans are more easily persuaded by 1 clear and concrete anecdote than by big data and expert statistical analysis.

“My friend’s brother bought a house in downtown Barcelona 2 years ago and is now selling it at twice the price!”

This statement has far more impact on me as a human than: “the real estate market in Barcelona metropolitan area has an undersupply of mid-range housing and this scarcity will result in an acceleration of asset prices”

An anecdote is a one off. It is not data. It is not science. It is dangerous.

In statistics this is called a Type I error.  In slang: “a false positive”.  More simply stated, a type I error is detecting an effect that is not present, while a type II error is failing to detect an effect that is present (Wikipedia on Type I and Type II errors)

Success Literature and Type I Errors

I just read a blog post that reported lessons from the lives of 13 billionaires. It reported that each billionaire had built their empire based on a product that they had wanted as a consumer.

I suspect if you interview 2,000 failed and bankrupt entrepreneurs, the majority would also say that they had build their companies around a product that they had wanted as a consumer.

So often, success is luck and failure is luck. However, those that succeed sell their story as a systematic managed process of step by step success, and those that fail sell their story as a perfectly executed plan blown to bits by a black swan event (I tell people I failed because of the failure of Lehman brothers and the collapse of the financial markets during 2008-2010).

I suspect that the recipe of success is “try something, if it works, do it again… if it doesn’t work, try something else… and keep going until you succeed” The determination to succeed combined with the commitment to really learn from each setback is the root of all success. Luck will adjust whether the success comes at age 25, 25 or 75.

Be careful of anecdotes. One man’s good deal is not a sustainable marketplace.

5 responses to “I know this guy who was successful (otherwise known as Type I errors)”

  1. Thanks for mentioning at the end that success can happen at “25 or 75”. Just having the drive to succeed at something, whether it’s big or small, keeps us alive and young at any age! I’m ready to tackle the day! 🙂

    1. There is a big difference between being seen by others as a success, and feeling that you yourself are a success. Sometimes one can feel like a failure, yet others will see me as a success… other times one will feel a success, yet others will not recognise this.

      1. Very true!

  2. Excellent post.
    Not only is it excellent, but you are absolutely right, and I am not being facetious.

    I could tell you a story going back to 1987/88 in Dublin involving Michael O’Leary, and how things were before he failed in his first business venture.

    And how he would have compounded his mistake if Tony Ryan of Ryanair had listened to him..

    Luck has a huge role to play, undoubtedly.

    1. That would be an interesting story! I just finished the Tony Ryan biography a couple of months ago. Interesting read. Not clear that I would support his morals, but he did create a whole generation of Irish business leaders…

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