Have you ever had that feeling of “I knew that was a bad idea!” after something went wrong? Or perhaps you’ve heard someone else say that very same phrase. What you are observing there is called hindsight bias.
Hindsight bias is a term used in psychology to explain the tendency of people to overestimate their ability to have predicted past events. It’s also sometimes called the “knew-it-all-along” phenomenon. You look to the past and say “I knew it all along” because, in hindsight, the event seems predictable. Yet in the actual moment, before the event occurred, it is extremely unlikely that the outcome would have been predicted.
As a result, hindsight bias can cause distortions about the actual events as they took place, especially when reviewing your past decisions. You may develop overconfidence for positive events and anxiety for negative events which you say you “knew all along.” We will explore more of this in the examples below.
Examples of hindsight bias
You might experience hindsight bias anytime when you’re looking back on an event and have a feeling that you could have predicted it. The same goes for observing it in other people. If you hear them mention that they “knew it,” you’re probably seeing hindsight bias in action. Here are some common examples of hindsight bias.
Predicting the stock market
Probably the most common example of hindsight bias is when people say they knew that a stock was going to go up or down. People look at past returns and make up patterns in their heads.
“Oh you could clearly see that the price was trending upward”
“Oh I knew the market was going to tank when COVID-19 hit.”
But did you really know? I mean, if you did, good for you. But you should have sold your house and put all of your life savings into the stock market.
“I knew he was going to be a cheater all along!”
“I should have known she’d leave me for that other guy!”
People are often really harsh on themselves and others for past relationships. Especially for romantic relationships, things are really intimate and you feel like you really know the person. So when things go bad, it feels like you knew how it would end all along.
But things are rarely that simple. It’s very hard to see red flags and the bad signs when you’re deep into the relationship. Those red flags don’t look so red when you’re in the moment.
Many people look back on their career choices and see mistakes.
“I knew I chose the wrong major.”
“I knew that company was going to be horrible”
“I knew I should have made that business move back in 2014.”
Yet in that moment, such choices were extremely difficult to make. Teenagers are forced to choose a major to lead to a 40-year career at the age of 17! Most people simply haven’t developed the maturity or life experience to be able to make such big decisions at that age.
Predicting whether a company or business move is going to be good is extremely difficult too. There are just too many variables. It’s an educated guess at best.
Overcoming hindsight bias to learn from past decisions
Recognizing and overcoming hindsight bias can really help with personal retrospectives and reviewing past decisions for self-improvement. Here are 4 ways to do that.
Remind yourself that you can’t predict the future
No one can. At least not with 100% certainty. We can have hunches and guesses. But no one can accurately predict the future. Warren Buffett can’t predict the stock market and Elon Musk can’t predict the next technology innovation. They can make educated guesses, but no accurate predictions. So don’t sweat it. You did the best with the information you had at the time.
Look at the data
Always always always make decisions based on data and concrete information. Never make decisions based on feelings.
Many people get into financial trouble because of hindsight bias. They look back and say “I knew that stock would go up.” Then, when they get a similar feeling one day, they decide to finally act on it and put their money in. That’s a dangerous bet based on feelings, not real data.
Try to have some sort of numbers or solid information before making decisions. If it’s a money thing, you can get actual numbers and percentages to get a rough estimate of your risk vs potential ROI. If this is a relationship thing, think about actual direct signs you may have seen that could have been indicators of the future outcome. Perhaps something the person actually did or said repeatedly. Not “just a feeling.”
Record your decision process
By keeping notes about your decisions, you can avoid making mistakes based on your in-the-moment feelings. You have a concrete record of how you’ve made past decisions and can use it as a reference point for future ones.
If you find that your decision process is working, you can keep using it. If not, you can make some small tweaks. Either way, you have a clear record of decisions and outcomes that you can make improvements off of.
Consider the other options
Remember the other options you had at the time of making your decision. You didn’t choose them for a reason. Why? Think about it and try to come up with a few legitimate reasons.
Often times, you may find that the decision you did make in the past was quite rational all things consider. At the time, the other options may have looked unreasonable when you really compare them to the decision you ended up making. Even if you did make a mistake, at least now you can see what the options were and make adjustments to better consider them in your future decision-making process.
This article is part of a mini-series on cognitive biases. Stay tuned for more! Check out the others so far here:
Confirmation Bias: How to Be More Open to New Ideas
Availability Bias: Don’t Let Your Surroundings Affect Your Decisions
Framing Bias: How to Make Better Decisions
Anchoring Bias: How to Avoid Getting Ripped off on Salary
Loss Aversion: How to Take Calculated Risks
Substitution Bias: How to Make Sure You Don’t Miss the Details
Thinking, Fast and Slow by Daniel Kahneman