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Did you really know it all along?
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Did you really know it all along?

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The meteoric rise of a stock. The surprise victory of a political candidate. The instant success of a new product. 

Sometimes we say – “I knew it all along”. But did we really? 

Memory is a tricky thing. We think of it as linear and well-organised, but it’s fragmented and incomplete. And that makes it easy for us to misremember bygone events. 

We feel as if we knew it all along – even when we didn’t. 

We reconstruct the past selectively, highlighting facts that appear to support the outcome. We create a narrative that makes sense to us. We settle for easy A-led-to-B explanations and conclude that the outcome was foreseeable – and that we “knew it all along”. 

This is a common decision trap referred to as ‘hindsight bias’. 

In This Cognitive Bias kills our ability to thrive in complexity, Peter Green defines it as: 

Also known as the knew-it-all-along effect, Hindsight Bias is the inclination, after an event has occurred, to see the event as having been predictable, despite there having been little or no objective basis for predicting it. 

According to a paper by Neal Roese and Kathleen Vohs, published in Perspectives on Psychological Science, hindsight bias plays out in three ways: 

  1. When you misremember your earlier opinion or judgment: “I said it would happen” (even when you may have said the opposite).
  2. When you believe the outcome was inevitable: “It had to happen.”
  3. When you are convinced you personally predicted the outcome: “I knew it would happen.”

So, this week my message explores our tendency towards hindsight bias, and how to mitigate its potential dangers. 

What makes us predisposed to hindsight bias? 

1. Our memories are unreliable 

The human brain isn’t built to recall the past accurately. Our perceptions are scattered and fragile, and it’s all too easy to for our memory to create a more convenient version of events. 

2. We prefer speed over accuracy 

We like to think quickly – but not deeply. In his book, Thinking Fast and Slow, psychologist Daniel Kahneman explains that the human brain has two systems: System 1 is fast, intuitive and looks for easy patterns, while System 2 is slow, logical and requires effort. Thanks to evolution, System 1 gets the first stab at processing information and delivers a rapid (but often flawed) understanding. 

3. We crave order 

Being able to see the world as predictable and well-ordered makes us feel more comfortable. We don’t like chaos or chance. 

4. Simplicity is attractive 

A simple explanation rings true – even if it isn’t so. That’s why the most effortless causal connection becomes our best explanation. 

5. We like to be know-it-alls 

It’s human nature: we don’t like to admit a gap between what we know now and what we knew then. So, we rewrite history. Or, we simply choose to believe that the outcome was inevitable, and that there’s nothing we could have done about it anyway. 

So, what’s the harm if we tell ourselves a tale or two? After all, it’s in the past. In moderation, it does no real harm – it helps us retain a sense of order and gives us the confidence to make decisions. However, in excess, it can become a serious problem because it affects how we think and make decisions about the future. 

Here are some dangers of hindsight bias: 

1. You become overconfident 

It persuades you that you’re always right. Since you believe your past predictions are accurate, you start to think you can foresee the future. With this certainty in your own judgment, you become prone to risky, irrational decisions. 

Think of the gambler who wins ten times in a row and becomes convinced that he can truly predict the future. He stakes everything in the eleventh round, only to lose it all to chance – which was the determining factor all along! 

2. You stop learning 

It impairs your ability to improve and grow. When you dismiss bad outcomes as inevitable, you don’t analyse your own role or take personal responsibility. So, you get stuck: if you’re never wrong, you can never learn. 

One study surveyed a number of entrepreneurs whose startups failed. Prior to the failure, 77% believed their business would be a success. But afterwards, only 58% said that they had initially believed in their startup’s success. Think about the 19% who rewrote their past views to match the outcome: do you think they would derive any valuable learnings from the failure? 

3. You assign blame wrongly 

Your belief in the predictability of a bad outcome can make you unfairly harsh towards your team members, assigning blame where none exists. In his article, Hindsight bias, Kent Hendricks elaborates: 

While employees make decisions without knowing the complete outcome of their decisions, managers evaluate those decisions only after learning the outcome. An employee with an excellent performance history could make the best possible decision based on all available information and company protocol, but a negative outcome could still occur because of circumstances beyond the employee’s control.  

4. You develop tunnel vision 

Roese and Vohs highlight myopia as a consequence of hindsight bias: 

When people think myopically, we mean that they fail to perform a thorough search for explanations. Being “cognitive misers,” people often seize on the first causal candidate that comes along. 

You slowly lose the ability to understand multiple causality and nuance – a serious handicap in an increasingly complex world. In Avoiding Hindsight Bias At The Workplace in 6 Steps, Theodora S. Abigail explains the oversimplification effect: 

Hindsight bias often causes us to focus intensely on a single explanation for a situation, regardless of the truth. There are many factors that affect outcomes in the workplace (and in finance and politics). Hindsight bias can blind us to these factors and cause us to develop tunnel vision. We stop paying attention to alternative explanations and ignore the evidence and data we have. 

Here are some ways to bring cognitive bias under control: 

1. Record your thinking 

Abigail recommends keeping a written record of your thought process to prevent selective recall. You could also use an online journal or even voice notes. 

  • If you’re making a big investment decision, take note of why you’re doing so
  • List the factors that you’ve considered and write a justification of the choice you want to make
  • Talk about your suspicions, your hunches, your feelings, and, of course, the proof

Once the outcome is released, you’ll be able to accurately reflect on the situation. The insights will help you refine your process and fine-tune your decision-making skills. 

2. Consult written records 

In the absence of personal records, examine the past through other reliable sources. You could look at minutes of meetings, emails, memos, and so on. Try to piece together an accurate history, without superimposing your own memories. 

3. Think of alternative causes 

Don’t settle for the first cause-and-effect relationship that springs to mind. Engage System 2 of your brain and consider alternative explanations. For example, if your project is a huge success, your first thought might be that it’s all thanks to the new process you introduced. But dig deeper: Who led the project? What was the environment like? Did the team receive extra support? Could the recent training program have played a role? 

4. Consider the opposite 

Roese and Vohs encourage decision-makers to consider how outcomes that didn’t happen could have happened. By bringing other possibilities into play, the effects of hindsight bias are neutralised: you start seeing the entire complex chain of events that led up to the result, instead of just the simplest explanation. 

5. Get an outside perspective 

If you’re having trouble seeing the outcome as anything but inevitable, a more objective view can be helpful. Hendricks has this suggestion: 

Anonymize the events, remove the outcome, and send them to people unaware of the situation and see what kinds of outcomes they predict. 

6. Rely on data 

In the Gallup article, Why Leaders’ Thinking Is Often Wrong, Gallup scientist Barry Conchie says: 

Feeling that you’re right or wrong doesn’t always correlate with being right or wrong. Certainty in these things is a very dangerous feeling. 

This is why decision-making should be grounded in rigorous data and analysis. Depending your gut instinct alone can be dangerous, given the biases are hardwired into our brains. 

Are there situations where hindsight bias has impacted you? How do you deal with avoiding this decision trap? I look forward to your thoughts.

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Vivek • November 26, 2018


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Comments

  1. Ankit Jalan November 28, 2018 - 12:33 pm Reply

    Nice read, Vivek. Couldn’t agree more with the point on recording your thinking at the time of any major decision. Copying a fascinating anecdote on decision making from Howard Marks –

    “The first thing I remember learning at Wharton in 1963 was that the correctness of a decision can’t be judged from the outcome. Because of the randomness at work in the world and the unpredictability of the future, lots of bad decisions lead to good results, and lots of good decisions end in failure.

    The correctness of a decision can’t be judged from the outcome. Nevertheless, that’s how people assess it. A good decision is one that is optimal at the time it is made, when the future is by definition unknown. [It is] one that a logical, intelligent and informed person would have made under the circumstances as they appeared at the time, before the outcome was known.”

  2. Sunita Devrani November 29, 2018 - 2:47 pm Reply

    As always, this made me sit up and think leading to reflection. Thanks, Vivek,

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