Learning from World War 2!

Just have a look at the image above, I would share a story about it. This is an image from World War two & it's from the US Air force. It is a rough representation of some data that was collected from the fighter aircraft's that returned back. It showed the places where bullet damage was found on returning aircrafts.

US Air Force was faced with a dilemma when it came to protecting their bomber planes from being shot down by enemy fire. They wanted to add protective armor on aircrafts but doing so on the whole body would add to the weight. Aircraft may not fly, or its range and capabilities would suffer if they became heavier. So, they only wanted to protect the most vulnerable parts of the fighter aircraft.

After analyzing the data from all the fighter aircrafts that made it back, they noticed that most of the firing was concentrated around the tail body and wings as we can see in the picture above. Just by going through this data, they concluded that the armor must be added to the wings, tail and body where the aircrafts got hit the most (red dots). Seems logical, won't you agree?

But that would have been a wrong conclusion! Abraham Wald, then a research consultant to US Military saw what was missing in the data! He argued that there is suspiciously no gunfire recorded on the cockpit, none on the engines and on the very particularly fragile narrow part that joined the body to the tail. It's because those aircrafts that got hit on cockpit, engines or lower narrow back, didn't survive. Obviously since those fighter aircrafts were destroyed, they could not come back and reflect in the data (red dots).

So, the right conclusion is, the red dots are where the fighter aircrafts can sustain damage and still return home! Its where there are no dots, where the aircrafts are most vulnerable and needed protective armor the most! Abraham Wald saw beyond the obvious, he overcame a human bias, its Survivorship Bias.

The US military had the best data available at the time, and the stakes could not have been higher. Those planes would have been armored in vain had it not been for the intervention of a man trained to spot human bias.

Key takeaway for us here is looking beyond the obvious. Consider what you don’t see! If you’re going to do something, do it fully informed. That includes Investing even more, since there are numerous pitfalls and biases here. An un-informed decision can be very costly in Investing world!