Hindsight bias: Why do unpredictable events seem predictable after they occur?

When looking back on surprise events, such as the outcome of a political election, the winner of a close sports game or a stock market crash, it can be tempting to think that you saw it all coming.

Behavioural Economists and Psychologists have coined the term “hindsight bias”, or the “I knew it all along” phenomenon, to describe the tendency to look back on unpredictable events and think that they were easily predictable[1]. When a surprise event occurs, we quickly shift our mental model of the world to accommodate the shock. However, the human mind struggles to reconstruct our past thoughts and beliefs which can result in a systematic underestimation of just how surprised we were – and the more shocking the event, the more difficult it is to believe that we never saw it coming.

Why does this bias occur?

Social Psychologist Neal Roese and Behavioural Economist Kathleen Vohs propose three levels which combine to create the feeling of hindsight bias. These levels are: 

• Memory distortion (“I said it would happen”) which refers to the false recall of previous thoughts and beliefs[2]. For example, after a political election, people often overestimate the extent to which they believed in the winning candidate.
• Inevitability (“It had to happen”) builds upon memory distortion but also embraces the belief in causal forces which made the outcome more predictable and possible than alternative outcomes. Events which have straightforward causal explanations and form a coherent story are more subject to hindsight bias than those with complex explanations[3].
• Foreseeability (“I knew it would happen”) is more subjective and involves believing that we possess superior knowledge which allowed us to predict the event[4]. For example, after a stock soars in price, we might believe that our expert insight meant that we could have anticipated the movement.  

Staying on the safe side

Hindsight bias is particularly harsh on decision makers acting on behalf of others, such as policy makers, physicians and financial advisors[5]. These people often receive too little credit for decisions that appear obvious only after the fact and are blamed for sound decisions that turn out badly, which can result in overly risk-averse behaviour. The term “outcome bias” can be used to describe this effect – it refers to the tendency to evaluate the quality of a decision based on the outcome, not the decision-making process, even if a bit of luck was involved[6].

An experiment was conducted to measure hindsight bias in public attitudes towards policy decisions. Inspired by a real case, student participants were asked whether the city of Duluth, Minnesota should have hired a full-time bridge monitor to prevent against debris causing flood damage. 24% of students that were presented with only the information that the city had at the time of the decision were in favour of hiring the bridge monitor. This rose to 56% among students who were told the outcome, that debris caused flood damage, despite being instructed to not let their knowledge of the outcome affect their decision[7]. Knowledge of the outcome coloured the participants’ judgements of the decision-making process and actions which seemed reasonable in foresight appeared as reckless in hindsight.

If decision makers expect their choices to be scrutinised after the outcome, this can encourage extreme risk-aversion in order to reduce the possibility of an unfavourable result[8]. This can drive policymakers to bureaucratic solutions and encourage physicians to prescribe conventional treatments, even though these actions may be less effective than a riskier alternative.

Risky Business

However, in other cases, hindsight bias can encourage risk-seeking behaviour. The false belief that we have an exceptional track record predicting the past can create overconfidence[9]. This is particularly strong in areas where skill can play a role, such as picking stocks. If we believe that we have a unique ability to predict stock price movements then we may take on excessive risks that we would not have otherwise[10].

Guarding against the problem

To mitigate the effects of hindsight bias, we can consider the range of outcomes that could have unfolded but did not unfold[11]. By mentally walking through other possibilities, this puts the extreme event in perspective and may make it seem not so inevitable after all.

Ultimately, this bias in a part of human nature. Accepting that much of what happens may be entirely unexpected is uncomfortable. Creating compelling stories about the past and believing that the world is an orderly and predictable place can bring us comfort and the self-assurance required to navigate the uncertain future.    

References:

[1] The Decision Lab (n.d.) Hindsight bias – Biases & Heuristics. Retrieved 21 March 2021, from https://thedecisionlab.com/biases/hindsight-bias/

[2] Roese, N., & Vohs, K. (2012). Hindsight Bias. Perspectives On Psychological Science, 7(5), 411-426. doi: 10.1177/1745691612454303

[3] Ibid.

[4] Ibid

[5] Kahneman, D., & Egan, P. (2011). Thinking, fast and slow. New York: Random House Audio. p. 203.

[6] Ibid.

[7]. Ibid.

[8] Ibid.

[9] Cherry, K. (2020) How Hindsight Bias Affects How We View the Past. Retrieved 21 March 2021, from https://www.verywellmind.com/what-is-a-hindsight-bias-2795236

[10] Roese, N., & Vohs, K. (2012). Hindsight Bias. Perspectives On Psychological Science, 7(5), 411-426. doi: 10.1177/1745691612454303

[11] Ibid.