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December 2, 2011 / Simon Thorne

I can predict everything that happened last week – The Hindsight Bias

Aren’t my predictive powers remarkable? Now when people ask me about events, I can say, “I knew that would happen”.  This is common for me, when I go to a football match, after the game, everybody knew what the result would be, based on how the teams had been playing, manager interviews and what ever the players had been ‘tweeting’ about the week before. This all creates a coherent story as to why the game ended the way it did. But what else could we have prevented? Many people knew that the financial crisis of 2008 would happen, and line up to get on talk shows to illustrate what should have been done to prevent it. When actually, they didn’t know, they may have thought it would happen, but they only know because it actually did happen. Could we have prevented 9/11? On the 10th of July, 2001, the Central Intelligence Agency (CIA) obtained information that al-Qaeda were plotting an attack on the USA. Surely when this information came in it should have been fast-tracked all the way to the president? But no it went to the head of national security, where it was noted and filed away. Did the United States government not care? We are quick to assume that the government was negligent with this information, but that is only because we know what eventually happened. At the time, the CIA would have had no idea how important this information was, therefore did what they always did, filed it, and carried on obtaining information.

You would think that people could accurately recall what they thought would happen, after an event has passed. Fischhoff and Beyth found this wasn’t the case, in a study that investigated people’s beliefs before and after President Nixon visited China and Russia in 1972. Participants were asked to rate the likelihood of possible outcomes of Nixon’s diplomatic initiatives. After the event had taken place, participants were asked to recall their original beliefs about what would happen. They found that events that came to fruition were rated as always being likely, and they raised their own prediction, while events that didn’t occur were rated as never being likely in the first place. This is an example of the illusion of understanding; after all, it is easy to understand what happened when the event has already taken place. This also shows that it is very hard to go back to former beliefs you once held, leading to the hindsight bias in which we think of things as being inevitable when really a lot of what happens is unpredictable and down to luck.

 

The hindsight bias can also influence decision-making. If decisions are based on having a positive or negative outcome, rather than if they were the logical, rational and correct decision, then it can make people anxious about making a decision. Kahneman (2011) uses the example of doctors. They have to make decisions every day based on what they think is the right option for the patient. If a doctor decides that a patient needs a operation which is not considered a risky procedure. Then the patient dies. In hindsight a jury is likely to conclude that the operation was always risky, and therefore should have been avoided. This leads doctors to avoid entering situations where this can happen, resulting in participants having more pointless tests and being referred to numerous specialists just to cover the doctor in case of an unlikely event. This was proved when participants in an experiment were given a real legal case study to consider. One group was asked whether California should pay for the considerable cost of hiring a bridge flood monitor with only the information the city had before a flood occurred. The second group was shown information that the bridge had flooded. The results? Only 24% of the first group thought they should of hired a monitor, while in the second group, the ones with hindsight, 56% thought the city should have. Hindsight is a wonderful thing.

 

When we can create a narrative about what has happened, it seems all the more likely that events were always going to happen. The more coherent we make it, the more inevitable it becomes. A number of things contribute to this. When we think of the case of 9/11 we think of George W. Bush and terrorists. When we think about these individually, we will think that George W. Bush is incompetent, and unreliable, this creates a Halo effect that will be associated with the United States government. We think of terrorist as evil and scheming. When these Halo effect are added to the information that the CIA obtained, it makes the lack of action all the much more expected, therefore a terrible event was inevitable. When in reality, there was no way of knowing that piece of information was more important than all the other pieces of information they were gathering, this, along with countless other variables, made the terrible event unpredictable.

 

There is much to be said about how we tell a story too. How we attribute certain parts of a past event is going to directly influence how we will behave in future. Think of how we have globally attributed bankers as being bad after the 2008 financial crisis. Or if we keep personally attributing negative events towards ourselves, we eventually going to feel useless and that bad things will inevitably happen to us, leading to learned helplessness.

 

So if you were to take anything away from this blog, it would be not to be so hasty believing ‘why’ things happened. The world is an unpredictable place, and creating a narrative in hindsight is not going to change events. This is just one small aspect of the hindsight bias, and there is much more out there. How it will lead to regret, depression, financial insecurity and much more. Regret is a huge part of consumer psychology, and this will be the focus of the final blog next week (maybe…).

 

So to leave you with a piece of bumper sticker philosophy…

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3 Comments

Leave a Comment
  1. Lynn / Dec 2 2011 8:15 pm

    I think I understand. It’s always been said that hindsight has 20:20 vision.
    Just 1 thing – why is it snowing all over the page!

  2. limabean13 / Dec 4 2011 10:18 pm

    Whenever I hear the phrase “In Hindsight” its normally a friend trying to end a little dispute between others, or make something that they did, rational and make themselves feel less like a moron. Everyone loves to say they knew that was going to happen, whether it’s a game, watching people do stuff or just to win an argument “oh I knew you’d say that” or “I knew you’d take her side”
    Every day we take risks and are accountable for them. Barristers, judges, doctors, teachers etc. We all try an avoid such situations. I failed my driving test last month because I had to make a decision to move out at a junction, I could see fine. However my examiner decided that a car could have come, and I may not have seen it. In hindsight she was right, it was risky, and she was making sure I was going to be a safe driver, it’s her job to ensure this. she was just predicting the outcome herself. Although I knew I could seem and it was clear to go, my examiner avoided being put in the situation of, well you could have made it etc.
    I think a lot of the time we go for the safer option, until the event has happened, then we can say “oh I knew it” and feel like we are a god or something, while still being ‘safe’ not having said anything, bet anything etc.
    In a way think the saying is a kind of contingency pan for everyone, in proving they were right at some point.

  3. The Wandering Consumer / Dec 9 2011 4:35 pm

    I knew you were going to write about this! Jokes – I had no idea. I think if we knew what was the best option or what was going to happen all the time we would either do nothing or be what Nudge describes as “Econs” – people that make the right choice all the time. Unfortunately as Thaler and Sunstein discuss to a great extent, ordinary people make mistakes, and Econs don’t exist in reality because everyone makes mistakes. Sometimes massive mistakes resulting in an economic crash or minor mistakes that result in not much at all apart from dented pride. That is why they focus on choice architecture to try and prevent people from making bad choices, making mistakes less likely but you can’t make people perfect; lessons are learnt from mistakes. For example when your little you want to touch everything but once you burn your hand on the oven you quickly learn not to make that mistake again, it’s just harder when you get older and it comes to saving money (or more importantly not) or picking a dodgy builder to fix your house and living to regret your choice.

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