“I knew the stock market would crash!”
“I knew Hillary Clinton would lose!”
“I knew oil prices would fall below $50!”
We all are familiar with similar “I told you so” comments from many of us – both laymen and experts alike.
Hindsight is 20/20
After an event happens, we feel that it was unavoidable, and “had to happen”. But, the truth could be that, before the event occurred, there were absolutely no signs of it happening. This psychological bias is called hindsight bias. It is also called knew-it-all-along effect.
In hindsight, everything looks more vivid and predictable than they actually are.
For example, I have seen several social media posts that resemble the below news piece:
… and such posts will be followed by a motivational punch-line like this:
“When the opportunity comes, don’t hesitate. Take the leap forward!”
The truth could be that – when Facebook was a much smaller company and approached Yahoo – it might not had a steady business model with a long revenue runway ahead. Also, given the risks with such companies, the price might not have been right. In hindsight, Yahoo made a stupid decision. If I were in Yahoo CEO’s shoes, I might have made the same decision – because I would be having no clue whether Facebook will be a success or not. Even Mark Zuckerberg would not know!
Having known the outcome, we tend to adjust past accordingly.
Researchers – Roese and Vohs – point to three levels of hindsight bias:
- memory distortion (“I said it would happen”),
- inevitability (“It had to happen”), and
- foreseeability (“I knew it would happen”).
Consequences of hindsight bias
- Blaming others: Since we feel that events were predictable, we tend to blame others for mistakes, saying: “why did you not see it coming?”
- Memories are altered: After the event occurs, we unknowingly distort our memories about the situation that existed before the event – so that they are consistent with the event being predictable. We might confuse this bias with lying. For example, your friend might tell you: “I told you that Germany will win the world cup!”. You know he didn’t tell that before. So, you might accuse him for being dishonest with his words. Actually, he might not be lying. It is quite possible that he has forgotten what he thought and told about Germany earlier. Once the event happens, we forget what we used to think about it earlier. We can’t fully trust our memories. Strange, isn’t it?
- Overconfidence: Because we believe that everything is predictable, we are likely to be overconfident and take up risks without thinking through the possible negative outcomes.
How to beat hindsight bias
Researchers say that it is tough to deal with this bias – even if you know that you are being influenced by it. They say that the only possible way to resist hindsight bias is to think about the possible outcomes that could have happened – instead of the one that actually happened – given the circumstances. Could they have happened? And why?
- If you think the stock market crash was predictable – think like this – what if, the stock market had continued to go up? What could have helped the market to run up like that?
- What if, Facebook or Google had failed? Can you imagine what could have caused such failures?
- What if, Hillary Clinton had won the 2016 election? What could be the reason?
- Germany won the football world cup. What could have prevented this? Who else could have won?
Roese and Vohs advice us to consider only two to three possible outcomes – else, it might be counterproductive. This is because, the difficulty in finding too many other outcomes will lead the decision maker to believe that there are no alternatives. This will reinforce her belief in the inevitability of the current outcome.
Many (or may be, most) things in this world are not entirely predictable. So, it helps to think in terms of probabilities, rather than certainties.
Wikipedia: Hindsight bias
Perspectives on Psychological Science: Neal J. Roese and Kathleen D. Vohs