What is Hindsight Bias? And why you should keep a diary
I came across the diaries of my great-uncle recently. In 1932, he emigrated from a tiny Swiss village to Paris to seek his fortune in the movie industry. In August 1940, two months after Paris was occupied, he noted:
‘Everyone is certain that the Germans will leave by the end of the year. Their officers also confirmed this to me. England will fall as fast as France did, and then we will finally have our Parisian lives back – albeit as part of Germany.’
The occupation lasted four years.
In today’s history books, the German occupation of France seems to form part of a clear military strategy. In retrospect, the actual course of the war appears the most likely of all scenarios.
Because we have fallen victim to the hindsight bias.
Let’s take a more recent example
In 2007, economic experts painted a rosy picture for the coming years. However, just twelve months later, the financial markets imploded. Asked about the crisis, the same experts enumerated its causes: monetary expansion under Greenspan, lax validation of mortgages, corrupt rating agencies, low capital requirements, and so forth.
In hindsight, the reasons for the crash seem painfully obvious.
The hindsight bias is one of the most prevailing fallacies of all
We can aptly describe it as the ‘I told you so’ phenomenon: in retrospect, everything seems clear and inevitable.
If a CEO becomes successful due to fortunate circumstances he will, looking back, rate the probability of his success a lot higher than it actually was. Similarly, following Ronald Reagan’s massive election victory over Jimmy Carter in 1980, commentators announced his appointment to be foreseeable, even though the election lay on a knife-edge until a few days before the final vote.
Today, business journalists opine that Google’s dominance was predestined, even though each of them would have snorted had such a prediction been made in 1998.
One particularly blundering example: nowadays it seems tragic, yet completely plausible, that a single shot in Sarajevo in 1914 would totally upturn the world for thirty years and cost 50 million lives. Every child learns this historical detail in school. But back then, nobody would have dreamed of such an escalation. It would have sounded too absurd.
So why is the hindsight bias so perilous?
Well, it makes us believe we are better predictors than we actually are, causing us to be arrogant about our knowledge and consequently to take too much risk. And not just with global issues:
‘Have you heard? Sylvia and Chris aren’t together any more. It was always going to go wrong, they were just so different.’
‘They were just so similar.’
‘They spent too much time together.’
‘They barely saw one another.’
Overcoming the hindsight bias is not easy. Studies have shown that people who are aware of it fall for it just as much as everyone else. So, I’m very sorry, but you’ve just wasted your time reading this chapter.
If you’re still with me, I have one final tip, this time from personal rather than professional experience: keep a journal. Write down your predictions – for political changes, your career, your weight, the stock market and so on. Then, from time to time, compare your notes with actual developments. You will be amazed at what a poor forecaster you are.
Don’t forget to read history too – not the retrospective, compacted theories compiled in textbooks, but the diaries, oral histories and historical documents from the period. If you can’t live without news, read newspapers from five, ten or twenty years ago. This will give you a much better sense of just how unpredictable the world is.
Hindsight may provide temporary comfort to those overwhelmed by complexity, but as for providing deeper revelations about how the world works, you’ll benefit by looking elsewhere.
Fallacy of the Single Cause – THE STONE-AGE HUNT FOR SCAPEGOATS
Falsification of History – YOU WERE RIGHT ALL ALONG
Story Bias – EVEN TRUE STORIES ARE FAIRYTALES
Forecast Illusion – FALSE PROPHETS
Outcome Bias – NEVER JUDGE A DECISION BY ITS OUTCOME
Self-Serving Bias – DON’T BLAME ME
The above article is from the book The Art of Thinking Clearly by Rolf Dobelli. The article is only for educational and informative purposes to explain and understand cognitive biases. It is a great book, definitely worth a read!