What Is Hindsight Bias?
Suppose a company CEO was presented with a potentially profitable business opportunity, but the CEO chose not to pursue the opportunity due to several uncertainties. After some period of time, it becomes clear that this choice was an error since other companies who took a similar risk had great success. Upon reflection, the CEO tells his Board of Directors, “I knew we should’ve taken the opportunity.”
But what is the official definition of Hindsight basis? Hindsight bias refers to our tendency to retrospectively see an unexpected event as having been easily predicted, the so called “knew-it-all-along” phenomenon. So with the understanding of the definition, let’s take a deeper dive into the example above. So in retrospect, it is evident that not pursuing the chance of the business opportunity was not the optimal choice, but that wasn’t clear from the beginning. The CEO’s statement that he knew the company should have pursued the opportunity highlights the way in which the interpretation of an event or decision may be altered when examined in hindsight. In summary, hindsight bias makes someone think they knew the right course of action after the event occurred, even when they didn’t.
Where Did It Start?
The phenomenon of “knew it all along” has been observed for some time, but its official scientific investigation began in the early 1970s. Inspired by the groundbreaking research conducted by his mentors, Daniel Kahneman and Amos Tversky, on heuristics, Baruch Fischhoff became the pioneer in the experimental investigation of hindsight bias.
Fascinated by the phenomena and its potential to anticipate political events in retrospect, Fischhoff collaborated with scholar Ruth Beyth-Marom to experimentally examine the idea in 1975. Fischhoff and Beyth instructed participants to forecast the probability of several outcomes for President Nixon’s forthcoming visits to China and the Soviet Union.
What was the outcome? After Nixon completed the travel, Fischhoff and Beyth instructed participants to remember their original expectations. The findings indicated that participants deviated from their initial expectations and instead aligned with the actual outcomes of the trip. Put simply, individuals remembered their predictions in a different manner, showing a bias for outcomes that they now recognized as being accurate.
Let's Look At More Examples!
Investment Decisions: Investors may retrospectively reflect on popped market bubbles and see signs of the bubble’s popping that were not acknowledged before the bubble burst. This reflection may warp investors’ ability to self assess their ability to forecast future markets and create overconfidence in investors’ skill. A typical statement of hindsight bias when talking about a burst bubble might sound something like, “I knew XYZ was a bubble because ABC had three bad quarters.”
Sports Outcomes: Fans may assert their prescience on their team’s victory post-game, despite the initial uncertainty during the match. The phenomenon of hindsight bias may lead individuals to mistakenly see themselves as having had more foresight than they really did while neglecting the inherent uncertainties and unpredictability associated with sporting events.
Relationships: In unsuccessful relationships, people may rationalize that they had always been aware of their partner’s unsuitability, even if they had a strong emotional commitment to the relationship at that time. Individuals may fall to hindsight bias, causing them to assume that they should have identified the indications of incompatibility at an earlier stage.
How Can You Avoid Hindsight Bias?
Psychologists Neal Roese and Kathleen Vohs have proposed a method to mitigate hindsight bias: reflecting on and providing explanations for alternative outcomes that may have occurred. By engaging in a cognitive process of evaluating all possibilities, an event will seem less certain and predictable. However, Roese and Vohs caution against considering an excessive number of alternative possibilities, as the decision-maker may mistakenly see the difficulty of doing so as a sign of their unlikelihood rather than their mere quantity.
Another method to tackle harmful overconfidence caused by hindsight bias is to maintain a record of your previous choices and their corresponding forecasts. This may be accomplished via the use of a “decision journal,” which specifically records your choices and the thought processes behind them. Having an documented track record of the predictions of your choices might help avoid the fallacy of believing that you have predictive knowledge.
A Journey Through Past Decisions
In essence, the influence of hindsight bias can significantly distort our perception of past decisions and events and result in overconfidence in our decision making ability. Whether it’s the regret over a missed financial opportunity, the conviction that we foresaw the outcome of a sports match, or the reassessment of a failed relationship, this bias paints our past experiences in the light of what we now know. Nonetheless, recognizing the sway of this cognitive tendency enables us to approach decision-making with a more critical eye.
However, the insights derived from the studies of renowned psychologists such as Baruch Fischhoff, Ruth Beyth-Marom, Neal Roese, and Kathleen Vohs shed light on effective strategies to counter the effects of hindsight bias. By embracing these methods, we can foster a culture of introspection and critical thinking, thereby empowering ourselves to make more informed and rational decisions. A conscious awareness of the impact of hindsight bias is crucial in cultivating a mindset that values foresight and sound judgment, both in personal endeavors and professional pursuits.