Hindsight is 20/20. You’ve heard that phrase a lot, but did you know it is based on a fluke in how your brain thinks about the past?
Hindsight bias is a Cognitive Bias where the human brain tends to see events in the past as more predictable than they actually were at the time. In short, when we think about something that has already happened we tend to believe the outcome was obvious.
Read on to learn why and to see some hindsight bias examples.
History as a Distorted Story
Our brains prefer that events make sense, that they tell a story that fits with our view of how the world works.
Hindsight bias is a filter our brains use to tell us that events in the past follow a logical pattern. Since we know how the event turned out we can see the whole story from start to finish, which makes us think the story was predictable back when it first started.
Hindsight Bias Examples
The Monday Morning Quarterback
A typical example of hindsight bias is all the second-guessing that occurs after a sporting event. Fans and commentators alike enjoy picking apart the decisions of the players after the game has finished.
In retrospect it is easy to see mistakes and point them out.
The Monday Morning … Stock Guru?
Similar to sporting events we tend to look at previous ups and downs of the market as predictable.
Of course we all knew that the DotCom bubble was going to burst, and years later we all knew that the crazy prices of real estate were going to collapse.
The Real Story
The problem with this is that the outcome of an event is only apparent after the fact. Until it has happened the result is uncertain.
The real story is that we feel confident when looking back but uncertain when looking forward, even though the difficulty of predicting events has not changed.
The two hindsight bias examples above are among the most common, but hindsight bias can occur after any decision.
A Feeling of Uncertainty
Think about some recent sporting events or market gyrations:
- Does it feel like you knew what the result would be?
- Does the outcome seem like something that makes sense, like it is the obvious, logical conclusion to the story?
Now think about the future:
- Who will win the next sporting event?
- Which players will shine?
- What will the market do tomorrow, next month, next year?
- Is there a bubble now? If so, what is it and when will it collapse?
Try to hold on to that feeling of uncertainty you get when you think about the future so that it is available the next time your brain tries to help you tell a story about the past.