It is difficult for our minds to reconstruct our previous beliefs.

When was the last time you said to yourself, "I knew it all along"?

Or felt irritated when someone said, "I told you so"?

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Hindsight bias, also known  as the ‘I-knew-it-all-along’ effect, is our tendency to view past events as more predictable than they actually were.  We believe that we knew all along that a particular event was bound to happen, but only after it happened. This bias makes us overestimate our ability to predict the future, which can lead to poor decisions.

 

Examples of hindsight bias

👉 You experience hindsight bias when you look back at an event and say to yourself ‘I knew it all along,’ or when someone else annoyingly remarks ‘I told you so.’ For example, a sports fan who claims after the match that she knew all along that her favourite team would win. Or an investor who says he knew for sure the share would rise… after the share price had risen significantly. This is hindsight bias in action, because before an event happens you can never know what will actually happen.

👉 The 2007 economic forecasts for 2008-2010 were highly optimistic. However, in 2008, the financial markets collapsed. Afterward, economists offered various rational explanations for the collapse. In hindsight, the financial crisis seemed entirely foreseeable and unavoidable. Yet, no economist had accurately predicted this outcome in advance.

👉 In 1914, the single shot that killed Archduke Franz Ferdinand of Austria-Hungary in Sarajevo set the world on the path that escalated into World War I. In retrospect, this escalation seemed inevitable, but at the time, no one anticipated such a development.

 

👉 Many studies have been done on what happens when people change their mind. At the start  of such a study, the experimenter measures the participants’ opinion on a certain subject, for example the death penalty. The participants then see a persuasive message, either pro or con. The experimenter then again measures the participants’ opinion, which usually has moved closer to the message they saw. Finally, participants are asked to report their prior opinion. Typically, participants are unable to reconstruct their former opinion and instead report their current opinion. Many even believe that they never had an opinion other than their current one.

 

👉 Participants in a study were presented with a story about a fictional couple. One group was informed that the couple had broken up, and the other group was informed that the couple had stayed together. Participants who were told the couple broke up reported higher expectations of the breakup, perceived it as more obvious, and rated the quality of the relationship more negatively. This indicates that knowledge about the breakup influenced their perceptions and judgment, leading to a more pessimistic evaluation of the relationship.

 

The psychology of hindsight bias

Your mind is constantly trying to make sense of the world based on its current worldview. When something happens that does not fit into this worldview, it immediately adjusts its worldview to accommodate this incongruous event. Due to the limitations of the human mind, a change in our worldview makes it almost impossible to remember what we believed before our worldview changed. Having adjusted our interpretations in light of current knowledge, it is difficult to imagine how things could have happened differently. This inability to reconstruct past beliefs makes past events seem more predictable than they actually were. This produces the cognitive illusion of hindsight bias.

 

The world is a messy, complex, unpredictable and incoherent place where random things happen. Our mind’s sense-making mechanisms make us see the world as more ordered, simple, predictable, and coherent than it actually is. Everything makes sense in hindsight. People need stories that offer a sense of understanding, no matter how illusory. Thinking we understand the past gives us the comforting illusion that we can predict and control the future. This illusion of control reduces the anxiety we would experience if we fully acknowledged life’s uncertainties.

 

Implications of hindsight bias

Hindsight bias makes people judge a decision based on its outcome, not on the soundness of the decision-making process. This makes it very difficult to evaluate a decision in terms of the beliefs that made sense when the decision was made. We tend to blame decision makers for sound decisions that turned out bad because we think they should have seen the bad result coming. For example, an investor makes a well-informed decision to invest in a particular share, based on thorough research and expert advice. Although the decision was sound at the time, external factors led to a market crash, resulting in significant losses. Hindsight bias can lead others to blame the investor for the ‘bad’ decision, even though the original decision was rational.

 

Actions that seem sensible at the time may appear negligent in hindsight. The worse the outcome, the greater the hindsight bias. That’s why many decision makers opt for bureaucratic solutions and are very reluctant to take risks. For example, healthcare providers can take a more defensive approach and request additional tests and medical procedures to avoid potential malpractice claims. This ‘defensive medicine’ can increase healthcare costs and reduce the efficiency of care. Healthcare institutions may implement rigorous reporting and accountability systems to track and document healthcare quality and safety. While this can improve transparency and accountability, it can also create an atmosphere of blame avoidance that may stop healthcare professionals from implementing innovative practices.

 

Due to hindsight bias, we tend to undeservedly reward reckless risk takers who take wild gambles and win. For example, in the early days of cryptocurrencies like Bitcoin, some people made risky investments, putting significant amounts of money into this relatively unknown and unpredictable asset. When Bitcoin’s price skyrocketed, these investors reaped substantial rewards. Hindsight bias can lead us to view these early investors as financial geniuses, even though their success can largely be attributed to being in the right place at the right time.

 

How to reduce the impact of hindsight bias

Protecting yourself from the negative consequences of biases can be tiresome and impractical, but can be worth it when the stakes are high.

 

⚒️ Become aware of hindsight bias

Becoming aware of the potential influence of hindsight bias is the first step in mitigating its impact.

 

When you blame yourself or others for important past events or decisions that turned out badly, take a step back to examine whether hindsight bias is distorting your view of the past. Ask yourself questions such as:

🤔 What was known at the time? Assess what knowledge was available.

🤔 What were the uncertainties at the time? Identify the uncertainties that were present. Check whether factors played a role that could not reasonably have been predicted.

🤔 What were the prevailing norms and standards? Assess whether the decision was in accordance with the prevailing norms, standards, and practices at the time.

🤔 Did others have different perspectives? Consider if other people had different viewpoints or predictions about the same event or decision. Were their perspectives valid, given the information available?

🤔 How could chance or luck have played a role? To get a more balanced view of the apparent inevitability of an outcome, imagine how things could have turned out differently. Consider things that could have happened, but didn’t.

 

⚒️ Keep a decision journal

Maintain a decision journal where you document your important decisions as you make them. Include aspects such as the available knowledge, uncertainties, your predictions about possible outcomes, the different perspectives of others and your reasoning behind the decision. Instead of relying on your memory and believing that you knew the answer all along, a journal means you have a written record of your thought processes underlying your important decisions. Comparing your predictions with actual outcomes will give you a better sense of how unpredictable the world is. 

 

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Hindsight bias reveals limitations of human memory and judgment. It makes us judge decisions based on their outcome, not on the soundness of the decision-making process. By becoming aware of hindsight bias and keeping a decision journal, we can reduce its influence.

References

Thinking, Fast and Slow, by Daniel Kahneman

The Art of Thinking Clearly, Rolf Dobelli

 

Hindsight Bias: Why You’re Not As Smart As You Think You Are, Farnam Street,

 

How Hindsight Bias Affects How We View the Past, Verywell Mind, by Kendra Cherry, MSEd,

 

Why Breakups Always Feel Predictable Retrospectively, Psychology Today, by Mark Travers Ph.D.,

 

My blogposts about biases and heuristics are available here:

https://www.a3lifedesign.com/blog-english/category/Biases

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