Hindsight bias is a particularly peculiar phenomena occurring across all industries and both inside and outside the business world. Has something ever happened to you and after the event, you were left with the feeling that you knew what was going to happen all along? You probably did not actually know, but after the event, you think you did.
Psychologists propose three levels of hindsight bias. The first is when you misremember an earlier opinion about the outcome of something. You say, “I said it all along.” You may even have this memory in your mind, but often, you knew no such thing.
The second level of this bias centers around inevitability. After the fact, you say, “It was always going to end up like this, it was bound to happen.” Whereas in truth, before the event, you could not say with any real certainty what the outcome would be.
And finally, foreseeability. You believe that you actively knew and predicted the event’s outcome, even when you did not. You confidently state “I knew it would end up like this.”
So, what is the issue here?
Well, hindsight bias convinces us that we knew what was going to happen all along. It makes us very confident in our predictions. Sometimes, this increases self-assurance, which can be a good thing. But sometimes, hindsight bias can lead to overconfidence. It can convince us we can do no wrong, we always get it right and nothing gets by us. But of course, our predictions are never that accurate. The bias convinces us we know things with a far greater level of accuracy than we do, which can influence our decisions going forward.
Often, this inclination is harmless, but it can get in the way of our learning and self-betterment.
Investors and entrepreneurs who suffer from this bias, for example, are more likely to take on overly risky, ill-informed ventures.
It can also mean it is harder for us to learn from our mistakes. If we are convinced that we “knew it all along,” it is difficult to analyse a situation and the outcome objectively, understand what happened, and learn from any mistake that may have been made.
According to the literature, there is not too much we can do about it, even when we are aware of it. However, if we attempt to explain to ourselves how alternate hypotheses could be correct in each situation, we are more receptive to other explanations, thus limiting the effect of hindsight bias.