Strategy. Innovation. Brand.

Spot The Fallacy – 1

I recently saw an ad for Progressive Insurance that says, “Drivers who save with Progressive, save $796 on average.”

Now I like Progressive. And I love Flo. So, I’m sure that the statement is true. I’m sure it’s based on fact.

But it also entails a logical fallacy. If you don’t spot the fallacy, you may easily assume that the average savings for all drivers who switch to Progressive is $796. That would be a mistake.

This is a good example of the survivorship fallacy. We only examine cases that “survive” a certain threshold. In this case, the threshold is drivers who save. What about drivers who didn’t save?

Let’s say that we have 1,000 drivers who saved money. In fact, they saved a total of $796,000. On average, they saved $796 each.

Now let’s say that another 1,000 drivers saved nothing. Now we have 2,000 drivers who saved a total of $796,000. On average, they saved $398 each.

When we consider those people (or cases) that didn’t survive the threshold, the numbers change dramatically. You might hear an investment company say, “Investors who have stayed with us for ten years, made an average of 7.3% per year.” The threshold is stayed with us for ten years. Your question should be, “Well, what about those who didn’t stay for ten years?”

The survivorship fallacy doesn’t just affect numbers; it also affects qualities. Let’s say a prominent management journal publishes an article that proclaims, “The Ten Most Innovative Companies In The World Do These Three Things.” The threshold for selection is the ten most innovative companies (however that is measured). It’s quite possible that many other companies do the same three things but aren’t nearly as innovative. Since they didn’t survive the selection criterion, however, we don’t consider them.

What’s the moral? When you see an ad, put your critical thinking cap on. You’re going to need it.

 

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