Hindsight Bias

Also known as the “I knew it all along” effect.  Hindsight bias refers to our tendency to take facts now known and  interpret them in a way that explains past events.  In retrospect everything seems clear and inevitable.

Biases Hindsight

This is a particularly dangerous bias becauses it causes us to believe that we have more control over the future due to our belief that we can explain the past.  This undermines the idea that the future is predictable which clearly is not the case.

Everything makes sense in hindsight, a fact that the loudhailers from CNBC exploit every evening as they offer convincing explanations for the day’s events.  We then cannot suppress the intuition that what makes sense in hindsight today was very predictable yesterday.  The illusion that we understand the past leads to much confidence (see overconfidence bias) in our ability to predict the future.  In reality, what actually happens in hindsight would often seem downright absurd, if you told it to someone in the past.

An example: Many stock investors say now that the 2008 financial recession was inevitable, yet few predicted it at the time nor took action to protect themselves from the market crash.  Even worse, Hindsight Bias fooled you into thinking that you saw the last financial crisis coming (you are great at predicting the past) and fools you again into thinking you’ll certainly predict the next one.

Undeterred, these same “confident investors” now have strong opinions on the future direction of the markets, even though tomorrow’s news will play a significant role in determining stock prices and no one knows what that random news will be.

By making you believe that the past was more predictable than it really was, hindsight bias fools you into thinking that the future is more predictable than it ever can be.

We get fooled by randomness too easily! 

Hindsight, however, is required to tell us what works and what doesn’t.  And while we’re waiting for conditions to be just right, the beauty and excitement of life is flying right on by.  Therefore, do sometimes ignore all of that doubt-inducing information and be driven by curiosity and passion instead.  Have the wisdom and courage to follow your heart.

But you probably already knew that, right?

“Don’t stumble over something behind you.” — Seneca

“What we refer to confidently as memory is really a form of storytelling that goes on continually in the mind and often changes with the telling.” — William Maxwell

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