Series 2, Episode 17: Hindsight Bias
Welcome back to the bitesize behaviour podcast.
If I were to ask you if you were enjoying this series so far and you said “Of course I am!” and I said “I knew you would"... well - for one I’d be suffering with a rather nasty bout of overconfidence, but I would also be suffering with the bias we are discussing today - Hindsight Bias.
If you’ve ever heard yourself saying “I knew that all along” or “I knew that would happen” the reality is, if we are being honest with ourselves, is that most of the time we actually didn’t know it all along, we just feel as if we did.
Behavioural scientists have shown that there are three levels when it comes to Hindsight Bias, three levels that kind of stack on top of each other. Think of it like a pyramid.
1. Memory distortion
At the bottom of the pyramid is hindsight bias based on memory distortion. This means that we misremember previous views or opinions and end up saying something along the lines of “I said that would happen”.
2. Inevitable outcomes
The second level is based on our belief that an outcome was inevitable and we find ourselves saying something along the lines of “It had to happen”.
3. Predicting an outcome
The third and final level is based on us believing we can predict an outcome correctly, and we end up saying something along the lines of “I knew that would happen”.
LEFT OR RIGHT?
For example, imagine you are driving somewhere new or unfamiliar. By the way - for this to work you also need to imagine you haven’t got a SatNav, or a map, or a mobile phone... but stick with me and I promise it will still make sense in the year 2020!
You come to a junction and decide to turn left. Your partner thinks you should turn right. You decide left is best.
A few miles later, the road comes to a dead end so you have to turn back. Your partner may very well turn to you and say “See… I knew we should turned right instead of left”. But how did they know? By the way - I promise this isn’t based on a real-life example… honestly!
But the fact is that in this situation, they clearly didn’t know and allowing this Hindsight Bias to be a feature of our decision making, means that we allow overconfidence, confirmation bias, and other behavioural traits to creep in and cloud our judgements. This is the enemy of good decision making.
You see, once we know an outcome it becomes really easy to find some sort of explanation and to make the person who made the decision in the first place, look like a bit of an idiot.
BUBBLES AND BIASES
There is a great example of Hindsight Bias and it’s to do with the Dot Com bubble from the 1990s. You will remember that the Dot Com Bubble was all to do with the rapid rise and investment in internet companies. People were investing thousands of pounds/dollars into these companies without many of the companies proving they were even profitable - or even a good business model in the first place.
When the bubble eventually popped, one company after another collapsed, sending stock market’s into free fall that lasted for the next two and a half years.
What’s interesting about this, is that many of the people who invested massive sums of money into internet companies, where the first to say “I knew it was too good to be true” or “I knew this was a bubble and it would all fall apart some day”.
Well, if they knew that, why did they continue to invest their own money into these internet companies in the first place. Greed? Stupidity? The desire to make a quick buck?
If I said to you that I’d like you to invest £10,000 into a company and we know that in one year’s time it’s going to go bankrupt and you’ll lose 100% of your money, you’d never invest, and that’s the same here. If the Dot Com bubble had been that obvious, and everyone knew it was going to happen, then steps would have been taken to ensure that it was avoided altogether. More to the point, there wouldn’t have been a bubble to burst!
PRETENDING BY ANOTHER NAME
What this shows us is the most important aspect of Hindsight Bias, for me is that pretending - and that’s what it is - that you knew something all along, actually prevents us from learning from our mistakes. It means we are less accountable for our decisions, less critical of ourselves and it allows us to become overconfident in our ability to make good decisions.
So when it comes to Hindsight Bias, here are my brutally honest top-tips. Stop thinking you can predict the future and stop using “I knew that would happen” as an excuse.
It prevents us from learning from our mistakes. And, when making important decisions, keep a record of why and how you made the decision in the first place. If things go bad, you have a record of what you did and can change it going forward. If it turns out good, then you could just have a blueprint for how to make good decisions.
So - that’s it for today. In the next episode of Bitesize Behaviours we’ll look at how adding in another option to your choices, can influence the decisions you make. We’ll look at the Decoy Bias.
See you next time on bitesize behaviour.