Hindsight Bias

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Devayani Vyavaharkar
Student (University), India

Hindsight Bias

🔥NEW Let us assume that you had an interview for the post of a Research Analyst at a top firm. After a few days, you get an email from them saying that you have been recruited for that post. Excited and happy, you tell this news to your mother. She suddenly exclaims and says, 'I knew this would happen.' Did she foresee the future? Not really. Instead, it was her gut feeling that you would get the job. Instances like these are bound to happen almost daily. Do we ever imagine why they happen? Such situations are due to the Hindsight Bias.

WHAT IS HINDSIGHT BIAS? INTRODUCTION

The word Hindsight means understanding an event or a situation only after it has occurred.
Hindsight Bias (or creeping determinism or "knew-it-all-along" phenomenon) is people's tendency to falsely assume that they can accurately predict an event's outcome (after the event has occurred) without knowing about it beforehand. Because of Hindsight Bias, people tend to assume that they can correctly predict either positive or negative consequences of an event as if saying "I knew it." For example: just by looking at some grey clouds in the sky, one tends to assume that it might rain in the evening. In case it does rain, the individual tends to assert that he was confident it would rain when he saw those grey clouds before. Whereas, if it doesn't rain, the individual thinks that he made a fool of himself by predicting it would rain just by watching two or three grey clouds in the sky. Here, the individual did not know if it would rain or not. However, he claimed to see the outcome because of hindsight. In simpler words, we tend to be experts at events only after they have occurred.

However, the Hindsight Bias can become dangerous if an individual starts blaming others for not seeing something so obvious. For example, an individual might blame the government for making a wrong decision and think about how the government could not see the negative consequences. However, if the individual was a part of the government, he might have thought that the decision was apt when it was being made. Thus, the consequences seem apparent only after the event has occurred, and not before it happens.

HISTORY OF THE HINDSIGHT BIAS

Baruch Fischhoff coined the term, Hindsight Bias. After attending a seminar, he found out that health professionals had the tendency to overestimate their abilities to foresee the expected results of patients' cases and claimed to have known it all along. Based on this observation, he conducted an experiment when US President Nixon had planned a formal visit to Moscow and Beijing. Fischhoff asked the participants to list down the outcomes of the Presidential visit and the probability of occurrence of each one of them. After the President's return, the participants were again asked to recall the probabilities. This time, Fischhoff found that, for the outcomes that had already happened, the participants stated a higher probability (overestimated) as compared to their earlier statements.

APPLICATIONS OF THE HINDSIGHT BIAS
  • Workplace: An employee has his promotion due and thinks that another colleague has a better chance of winning. If this colleague gets the promotion, the employee is more likely to reflect the Hindsight Bias, confirming his belief that he would never have received the promotion in the first place.
  • Stock market: When the stocks are quite low, some people buy the stocks, and some don't. After a certain period, the stocks skyrocket and reach a highpoint. The people who had purchased the stocks said that they knew stocks would rise. Whereas, people who didn't buy the stocks assume themselves to be fools for not buying stocks and knew something like this would happen.
  • Marketing: The aim is to make customers so satisfied with the product they buy, that they believe its quality is worth more than the value. Customers then engage in self-congratulations and reflect the Hindsight Bias saying, "I knew it. This shop would be better to purchase this product."
IMPACT OF THE HINDSIGHT BIAS
  • After learning details of a particular event, people tend to revise their memories to reflect the opinion as if they knew it all along. They tend to discard any inaccurate information they had, to make it sound correct and appealing after understanding the fact. Thus, it can lead to memory distortions.
  • If the bias is reasonable and does not lead to overconfidence, it can increase an individual's level of performance and confidence. For example, a student who has prepared well for an exam knows that he/she will earn good grades; this boosts the confidence level during the exam.
  • But Hindsight Bias does interfere with our ability to learn from experiences. If a person believes she knew something was bound to happen, she won't stop to think about the causes of the event and is unable to learn something from that.
  • It can often make us OVERconfident about how we are sure about our judgements.
  • Most importantly, this bias prevents individuals from taking responsibility for their mistakes. They relate every outcome to external, situational factors and ignore the role of internal, dispositional factors.
HOW TO REDUCE HINDSIGHT BAIS IN WORKPLACES?
  • Employees must remind themselves that they cannot predict the future, such as project outcomes, pending promotion, rise in wages, etc.
  • Decisions should be made by considering factual data and statistical records, and not just by personal beliefs and assumptions.
  • Before making any decision, wisely consider the advantages, disadvantages, and the alternate outcomes that could be possible.
  • Make decisions based on processes and not just by looking at outcomes. For example, an individual buys a lottery ticket and wins the lottery the first time. However, the next time, buying a lottery ticket won't necessarily result in winning.
Thus, mistakes made out of hindsight bias can help us and others learn. Along with our gut feelings, we must also rely on concrete ideas, facts, and insights.

⇒ Can you think of consequences of Hindsight bias in decision making? What have been your ways of reducing this cognitive bias?

Sources:
Chen, J. (2020, April 09). What Is Hindsight Bias? Retrieved July 23, 2020, from https://www.investopedia.com/terms/h/hindsight-bias.asp
'I Knew It All Along...Didn't I?' Understanding Hindsight Bias. (2012, September 06). Retrieved July 23, 2020, from https://www.psychologicalscience.org/news/releases/i-knew-it-all-along-didnt-i-understanding-hindsight-bias.html
Cherry, K. (2020, May 06). How Hindsight Bias Affects How We View the Past. Retrieved July 23, 2020, from https://www.verywellmind.com/what-is-a-hindsight-bias-2795236

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