Definition: The tendency to construct memories according to currently known facts and current beliefs.
Example: Saying "I knew it all along" when you probably didn't.
Example: The tendency of believers of prophecies to retrofit events to past claims.
Example: The tendency of people to think they can explain events after they happened.
Insight: We often construct memories from present beliefs rather than what was true in the past.
Insight: Events can easily be explained after the fact.
Insight: Our brains are pattern matching machines. Once we know something to be true, our minds start to reconstruct the past so that our memories fit what happened.
Insight: Hindsight bias may lead people to be overconfident in their ability to predict the future.
Principle: Don't always rely on memory.
Insight: Hindsight bias leads us to assess the quality of decision making not by whether the process of coming to the decision was sound, but by the outcome.
Insight: Hindsight bias comes with regret, we should aim to avoid it.
Insight: When making decisions we can attempt to avoid hindsight bias by either being extremely thorough or very casual.
Reference: Baruch Fischhoff: I-knew-it-all-along effect: we tend to underestimate how much we are surprised by past events, also known as hindsight bias.
Example: Hindsight bias tends to occur when political decisions have poor outcomes.
Insight: We are usually unaware when hindsight bias is occurring.
Insight: Poor outcomes can be the result of good decisions, or poor decisions.
Principle: Ask if the outcome could have reasonably been predicted given what was known at the time of the decision.
Insight: In retrospect everything seems inevitable.
Insight: Hindsight bias makes us believe we are better predictors than we are, and prone to taking excessive risk.
Principle: Keep a journal. Write down predictions. Review against actual events.
Definition: The finding that after the fact we believe we always knew the outcome was likely.
Insight: Hindsight bias is important to consider in management: a good decision at the time can lead to bad outcomes, failures cannot always be anticipated.
Insight: People tend to recognise hindsight bias in others, but not ourselves.
Principle: Create an environment where management are willing to take risks and are rewarded for decisions made with the information available at the time of the decision not after the fact.
Insight: We have a tendency to think we "should have known" an outcome would happen.
Insight: All decisions are made with incomplete information, and you will always have more information when looking back at outcomes than when trying to predict them.
Insight: Hindsight bias is destructive when we negatively judge ourselves or others for not knowing the unknowable.
Principle: Do not feel bad about something you should have seen or done.
Principle: Use past mistakes or failed predictions to focus on what you can do now.
Definition: The overestimation of what one knew at the time of an event due to subsequent information.
Insight: Past events will always look less random than they actually were.
Insight: An effect of hindsight bias is overconfidence in predicting the future.
Insight: People often form investment strategies based on what has worked recently rather than a cohesive strategy.
Reference: Daniel Kahneman: "hindsight bias leads observers to assess the quality of a decision not by whether the process was sound but whether its outcome was good or bad."
Definition: The tendency to view an outcome and assume it was predictable all along, even when, given the available information at the time, it was not.
Insight: Hindsight Bias causes us to attach higher probabilities to events after they have happened that we did before they happened.
Key Insights & Principles
Decision Making
Hindsight bias can lead to overconfidence in our predictive abilities, leading to poor decision making or risk taking.
We tend to assess the quality of decisions not by whether the process of making the decision at the time was sound, but by the outcome.
Everything seems inevitable in retrospect.
Keep a journal: write predictions, and review against actual outcomes.
Use lessons learned from past mistakes and focus on what can be done with the information available now.
Management
Managers tend to recognise hindsight bias in others but not themselves.
Hindsight bias can be destructive in teams when we negatively judge people for not knowing the unknowable.
Encourage reasonable risk taking by rewarding decision making within the context of the information available at the time of the decision.
