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You are being paid for your skill – if your skill turns out to be irrelevant, you’ll lose your job. Large monetary incentives are at stake.You aren’t aware of most of the factors that influence the final outcome, focusing on only the patterns that you do see. You focus on the causal role of skill and neglect the role of luck – the illusion of control.Your experience shows many instances where your predictions came true -partially because those are most available to you, and you discount your mistakes.Managers focus on the strength of their strategy and how good their company seems, discounting what their competitors are doing and market changes (“competition neglect”).But this doesn’t answer the real, more difficult question – is the information already priced into the stock? This requires lots of training and makes stock picking seem more rigorous. Stock analysts pore over financial statements and build models.By producing a lot of motion, you think that you can’t be wrong. You take deliberate, skillful steps to guide the outcome.Experts resist admitting they’re wrong, instead giving excuses: they were wrong only in timing they would have been right, but an unforeseeable event had intervened or they were wrong, but for the right reasons.The more famous the forecaster, the more overconfident and flamboyant the predictions.These are just a few of the reasons you fall victim to biases like the hindsight bias: Here are many reasons it’s so difficult to believe randomness is the primary factor in your outcomes, and that your skill is worse than you think. You forge on ahead, confident as always, discarding the news. Why Are We So Vulnerable to Bias?Įven when presented with data of your poor predictions, you do not tend to adjust your confidence in your predictions. This is the guideline by which you should assess the merits of your beliefs. The ultimate test of an explanation is whether it can predict future events accurately. Even if you’re told that these biases exist, you often exempt yourself for being smart enough to avoid them. You ignore your ignorance.Īnd even if you’re aware of the hindsight bias, you are nowhere near immune to it. You focus on the data you have, and you don’t imagine all the events that failed to happen (the nonevents).
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You often don’t notice how little information you actually have (or had before the outcome was revealed) and don’t wonder about what is missing. Insidiously, the fewer data points you receive, the more coherent the story you can form. This comforts us in a world that may be largely random. The general principle of hindsight bias is this: we desire a coherent story of the world. When we construct satisfying stories about the world, we vastly overestimate how much we understand about the past, present, and future. If we are certain that our past selves were amazing predictors of the future, we believe our present selves to be no worse. This might also be because they’re hired for their charisma and vocalness, not accuracy.
Hindsight bias definition psychology professional#
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It might even be difficult to believe you ever felt differently. Insidiously, you don’t remember how uncertain you were in the past-once the outcome is revealed, you believe your past self was much more certain than you actually were! This is hindsight bias. Once we know the outcome of an event, we connect the dots in the past that make the outcome seem inevitable and predictable.
Hindsight bias definition psychology how to#
Learn why the hindsight bias in psychology is an issue and how to overcome it. We’ll look at hindsight bias examples that make the above definition clearer. Hindsight bias is a problem because it inflates our confidence about predicting the future. Hindsight bias is the tendency to believe you have predicted events or outcomes that were unpredictable. What is hindsight bias? How does it work, and how can you avoid it?
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Like this article? Sign up for a free trial here. Shortform has the world's best summaries of books you should be reading. This article is an excerpt from the Shortform summary of "Thinking, Fast and Slow" by Daniel Kahneman.
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