Monday, September 24, 2012

hindsight bias

"The mind that makes up narratives about the past is a sense-making organ. When an unpredicted event occurs, we immediately adjust our view of the world to accommodate the surprise."--Daniel Kahneman
Hindsight bias is the tendency to construct one's memory after the fact (or interpret the meaning of something said in the past) according to currently known facts and one's current beliefs. In this way, one appears to make the past consistent with the present and more predictive or predictable than it actually was. When a surprise event occurs and you say "I knew it all along," you probably didn't. Hindsight bias may be kicking in.

Hindsight bias accounts for the tendency of believers in prophecies and psychic predictions to retrofit events to past oracular claims, however vague or obscure (retroactive clairvoyance). For example, after the Challenger space shuttle disaster that killed seven U.S. astronauts on January 28, 1986, hindsight bias was used by followers of Nostradamus to claim that he had predicted it in the following verse:

D'humain troupeau neuf seront mis à part,
De jugement & conseil separés:
Leur sort sera divisé en départ,
Kappa, Thita, Lambda mors bannis égarés.

From the human flock nine will be sent away,
Separated from judgment and counsel:
Their fate will be sealed on departure
Kappa, Thita, Lambda the banished dead err (I.81).

Of course, to make the obscene retrodiction complete, Nostradamus's minions would have to speculate that teacher-astronaut Christa McAuliffe was pregnant with twins to make nine the total in the "flock." The belief that one can predict the future is often due to little more than the power of hindsight bias.

Hindsight bias also seems to account for the tendency of many people to think they can explain events that weren't predicted after the events have happened. It is unacceptable to many people to think that major events like a respected Wall Street investment manager running a Ponzi scheme that cost people perhaps as much as $50 billion wasn't predictable. If only somebody had paid attention to this and that detail, Bernard Madoff could never have pulled it off. What is true is that a major impact event like this can be easily explained after the fact. The explanations may satisfy people and lead them to believe that they now understand how such an event happened, but there is no way to know whether collecting many facts and using them to explain what occurred will help prevent a similar event from happening in the future.

Why do we engage in hindsight bias? There are several reasons. The way memory works explains why we sometimes misremember predicting things we didn't predict. Once we know something to be true, the mind can easily recontruct the past so that our memories jibe with what actually happened. Also, we have a natural desire to see events as orderly and predictable, rather than as random and unpredictable. Daniel Kahneman (Thinking, Fast and Slow) explains:

Your inability to reconstruct past beliefs will inevitably cause you to underestimate the extent to which you were surprised by past events. Baruch Fischhoff first demonstrated this “I-knew-it-all-along” effect, or hindsight bias, when he was a student in Jerusalem. Together with Ruth Beyth ... Fischhoff conducted a survey before President Richard Nixon visited China and Russia in 1972. The respondents assigned probabilities to fifteen possible outcomes of Nixon’s diplomatic initiatives. Would Mao Zedong agree to meet with Nixon? Might the United States grant diplomatic recognition to China? After decades of enmity, could the United States and the Soviet Union agree on anything significant? After Nixon’s return from his travels, Fischhoff and Beyth asked the same people to recall the probability that they had originally assigned to each of the fifteen possible outcomes. The results were clear. If an event had actually occurred, people exaggerated the probability that they had assigned to it earlier. If the possible event had not come to pass, the participants erroneously recalled that they had always considered it unlikely. Further experiments showed that people were driven to overstate the accuracy not only of their original predictions but also of those made by others. Similar results have been found for other events that gripped public attention, such as the O. J. Simpson murder trial and the impeachment of President Bill Clinton. The tendency to revise the history of one’s beliefs in light of what actually happened produces a robust cognitive illusion.

One danger of hindsight bias is that it might make a person overconfident in his ability to predict the future. Neal Roese of the Kellogg School of Management at Northwestern University and Kathleen Vohs of the Carlson School of Management at the University of Minnesota found in their review of research on hindsight bias that it can make us overconfident in how certain we are about our own judgments. Overconfident entrepreneurs are more likely to take on unjustified risky ventures.But you already knew that. As Kahneman notes: "Hindsight bias has pernicious effects on the evaluations of decision makers. It leads observers to assess the quality of a decision not by whether the process was sound but by whether its outcome was good or bad."

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