Paperclip Challenge Smells of Survivorship Bias

“Does anyone else feel like they want to throw up after reading this?”

That was my first question after learning that I was assigned to participate in a paperclip challenge. This was part of a course I'm taking about starting and growing a small business. The challenge was to take a small object such as a paperclip or a rubber band and find someone who would trade me for something better. I was to continue trading for a week. At the next class I’d report on the project. Basically the game Bigger or Better for adults.

I’d heard about this challenge before, and had always thought it was a gimmicky idea. Now that I had the assignment the thought of doing the challenge made me sick. What was it about the challenge that bugged me so much?

I knew where the idea for this challenge came from. Back in 2005 a Canadian man named Kyle MacDonald traded a single red paperclip all the way up to a house. Ever since then business students had been subjected to this story as an example of what amazing results creativity and doggedness would produce.

And yes, it’s a cool story. MacDonald’s TED Talk is very entertaining. But, right from the start there are inconsistencies with the assignment I was given and what MacDonald actually did. He didn’t do his first trade in person. It happened online. In fact most of his trades were set up online. They took place throughout various locations in the United States and Canada. Clearly this was not a case of someone just walking up to random strangers and asking them to trade. Later, as his trades got bigger, media exposure helped him make connections with people who wanted to be part of the story. Also it’s important to note the year this took place. It happened in 2005-2006. This was pre-recession.

I tried to do a little research into what MacDonald is up to now. It looks like he rode the red paperclip wave to more success than just a house. He did the TED Talk, wrote a book, and became a motivational speaker. His online presence seemed to end in 2017 though. His website is silent and his twitter feed (re-tweeting flat earth conspiracy theories) hasn’t been updated either. Clearly this was a flash in a pan and not a sustainable business model.

I realized that this whole thing smelled of Survivorship Bias.

What’s Survivorship Bias?  Back in WWII Army officials analyzed the bullet holes in airplanes that came back from combat. Based on what they saw they made recommendations for where to put armor to protect the planes. However, they failed to account for all the planes that they did not see. These were the planes that didn’t return because they had been shot down. A statistician named Abraham Wald realized the error. He recommended that armor needed to be placed where the bullet holes were not located, since that’s probably where the fatal shots had happened to the planes that had never come back.

These days people talk about Survivorship Bias in relation to successful people. Successful people give advice about what things they did led to their success. They say, I did X and so it will work for you too. We fail to account for all the people who did X and it didn’t work out. Those many failures aren’t as visible as the few successes. (Want to know more about Survivorship Bias? Listen to this podcast by You Are Not Smart.)

Survivorship Bias occurs when we talk about the paperclip challenge. Because one guy was able to trade up for a house countless business students have been led to believe that this “trading mindset” is the way to go. They are left with the message that all you have to do is work hard and be creative and you will be guaranteed success. But we fail to account for all the people who start with a paperclip and end with a paperclip.

What can we learn from this? Is the paperclip challenge a useful exercise? Yes it is, but we need to look at it from a different angle. Instead of focusing on who makes the biggest trade we should analyze where the trades break down for each person.

For me the problem is right at the beginning. I do not want to do this challenge at all. Why is that?

After thinking about it for a while I realized that I do not feel comfortable approaching strangers with the request to trade something as small as a paperclip. I also don’t feel comfortable approaching people I know with the request. Most of the people I see in person each day are either my boss’s clients or my children’s educators. In either case I do not want to waste their time and our personal relationship with a trivial request to trade something. Especially something that I feel has little value.

And I think that there is the main problem for me. I don’t want to trade something with little value. If I’m going to approach a stranger or a friend with a request I want to make sure it is something of quality.

So what did I learn from the paperclip challenge - that I only want to sell things that I deem valuable and that I won’t waste other people’s time with trivial requests. I think that's a good lesson to learn.

How about you? Have you ever participated in the paperclip challenge? Where did it break down for you? What can you learn from that?