167. Hindsight Bias: Why Hindsight is Definitely NOT 20/20, a Behavioral Economics Foundations Episode

Welcome to episode 167 of the Brainy Business Understanding the Psychology of why People Buy Today's Behavioral Economics Foundation's episode is about hindsight bias Ready? Let's get started.

You are listening to the Brainy Business Podcast, where we dig into the psychology of why people buy and help you incorporate behavioral economics into your business, making it more brain friendly. Now, here's your host, Melina Palmer.

Hello hello everyone. My name is Melina Palmer and I want to welcome you to the Brainy Business Podcast. Today's episode is all about Hindsight bias. You've probably heard the phrase Hindsight is 2020 and maybe even said it yourself on occasion. Well, hate to bust your bubble, but it simply isn't true. We humans have a hindsight bias that makes us believe we knew something all along when reflecting back on an incident, and can cause all sorts of problems when making future decisions, which I'm going to cover throughout the episode today, as well as tips for how to combat hindsight bias so it's less of an impact on you. I'll mention several other concepts with their own episodes throughout this one, like those on the Overview of memory Biases, survivorship Bias, optimism bias, and more. In those notes. You'll also find links to articles about hindsight bias and your freebie worksheet so you can take notes and begin applying your learning from today's show right away. Those show notes can be found within the app you're listening to, or@the brainybusiness.com 167 in my opinion, the most important place to start is to talk about memories in general. There's a whole episode in the all the Biases series that's dedicated to memories, which is linked for you in the show notes, as I just mentioned, but the primer's really critical here when thinking about how our brains cloud things. When we look into the past, when we think about our brains and all the amazing things they do, much of what we're accessing are memories. Most people think of their brain like a filing cabinet, or maybe what we imagine when people say a photo is stored in the cloud, an exact copy of what was created or what happened, stored in a secure place to look at whenever we want, and then put back in the exact condition it was in when we took it out. Sadly, that's not how it works. Our memories are basically inaccurate renditions our brains tell us, and every time we access them, we change them a little. So the more you think about something, the less and less it's like the original version Frustrating, right? This is partially because of two biases called leveling and sharpening. Memories can be distorted over time. When details are lost in this process, there may be selective recollection, where you only remember, sharpen, and exaggerate certain portions of the memory. Or it can be leveled out to fit some other biases that exist and just get a little dulled over time. Both of these are constantly reinforcing each other, so the memories get further and further from the truth as time goes on, especially for those memories which are recalled again and again. Think about the old fishing tail example where someone caught a minnow, and by the time they tell the story, 20 years later, it was a whopper, the biggest thing you've ever seen. They're not intentionally lying in most cases, but as they've retold the story again and again, it gets modified. When they put it back in the filing cabinet in their brain, the. The fish actually gets bigger each time they tell the story, and they level out some facts to exaggerate others. Again, a natural tendency of the brain. And we do this in all sorts of experiences, not just to look good to other fishermen. When we assume that our memory of a situation is 100% accurate with all the facts and facets, we may make assumptions based on that information. Even reading about an event in history which feels as though it must be fully accurate is missing details and important pieces that people. People didn't even think to include or pay attention to. This is where our next concept, survivorship bias, comes into play. The iconic story of survivorship bias is of the planes in World War II. You have to be strategic about where to reinforce planes so they aren't too heavy to fly and are most likely to bring the team back safely. So the allied generals asked for an analysis of the planes to determine the best places to reinforce. An analyst took little cards and marked where the bullet holes were on every single plane. And then stacked together, it formed a very clear picture of where all the bullet holes were, primarily the wings and tail. Seeing this, the generals were pleased and ready to move forward with reinforcing those spots with the most holes. Thankfully, the analyst was able to point out their mistake in time and let them know that they were missing a huge and very critical piece of the data. The analysis could only take into account the planes that made it back. In essence, the big gaping spots without holes showed exactly where they needed to reinforce. Those bullet holes showed where the planes could take fire and still make it home, while the planes that took fire in the blank spots couldn't this is why it's been termed survivorship bias. If you only look at the data of the planes and pilots that survived, you could be making a huge error without even realizing it. Our hindsight bias does the same sort of thing in reflecting back on an event. The brain will assume it has all the information on what happened and why, and that it knows what to infer from that for the next time you encounter a situation like this. The problem, of course, is that you don't have all the information. When you try to make connections looking backward after you know the outcome, a lot of things start to pop out that you'll either say you should have known, or try to tell yourself that you did know all along. Anything to justify to yourself that you're someone who makes good decisions. This pops up in all areas of life. Think about a relationship that ended suddenly and took you by surprise. But then as you start to think about it, or go to tell someone about the experience, you might say, you know, six months ago they were acting really weird and being secretive. I noticed it all the time, but tried to convince myself it was nothing. I knew it was coming. Next time I'll trust my instincts. Or how many times have you watched a movie and after it was over, said it was so predictable and that you knew about that plot twist all along? Or maybe you have someone in your life who always says this, even though you know that they didn't know that Bruce Willis was one of the dead people that was seen in the movie. Yeah. Studies have found in all sorts of contexts, including watching movies and predicting political candidates or which team will win a sporting event, that when asked early on how confident they are in a particular outcome, it can be around 50%. When asked after the results are in, even to remember about what they said would happen for the outcome not so long ago, people are much more confident about 75 to 80% that they knew it all along. Essentially, this would mean going into watching the super bowl, someone asks you how confident you are in your team winning, and you say about 50, 50. Then a few hours later, when the game is over and your team did win, they ask you about the prediction you made and you say you were 80% sure they would win, that you knew it all along. You essentially completely forgot about your lack of certainty from just a few short hours before and it would be the same even if they lost, that you would have that overconfidence in hindsight, that you knew it was going to happen. But of course, we're not mystics. We don't know, and we like to tell ourselves we do, but it doesn't actually help us to make good choices next time. Once the results are in, it's easy to say you knew it, and it makes your overconfident, optimistic brain feel good about itself. This is also why everyone always says it's so much easier to play Jeopardy. Or any other game show from their couch. Or why students think they know the material for their class really well with the book in front of them, but when it comes time to take the test, they realize all the gaps in their knowledge and why investors make gambles and risks they shouldn't because they're overconfident in lessons they learned on studying past stocks and their outcomes after the fact, and know the signs of a sure winner or loser. I've talked a little about cognitive dissonance in recent episodes, and specifically the one on confirmation bias, and it is going to have its own foundations episode soon enough. But essentially I Our brains don't like to have a misalignment in what we believe to be true. Your brain believes that you're smarter, better, faster, stronger than everyone else, including the you of five minutes ago. So when something happens differently than you predicted, it looks for ways to resolve that discomfort, that dissonance, by reasoning that you knew it all along, even when you didn't or often couldn't have known. I'm not going to get into counterfactual and prefactual thinking in this episode. They each have their own linked in the show notes. But it's also important to note that this is a point where your brain may naturally spiral into a vicious cycle of what if? Or why didn't I? Thinking that can trigger your need to resolve the cognitive dissonance and say you knew it or should have known it, whatever it is. One simple way I combat hindsight bias when doing presentations is by making people commit to an answer or instinct before sharing what the real answer is. Here's an example from When I talk about anchoring, I start by telling people there's no Googling allowed. It's intentionally something they don't instinctively know. And then I ask the question, are there more or less than 100,000 penguins in Antarctica? Go ahead and answer aloud. Now. If you can commit to something, or maybe write it down, even in the air, but definitely commit to it and know that if this was a presentation of mine you were attending in person, I will either make them raise hands or shout out answers in front of the group. Or when done, virtually, we use the Chat box so now that you've chosen either more or less than a hundred thousand penguins in Antarctica, I ask how many do you think there are? And also wait for people to shout out or type in their answers. Commit to yours now as well. Only then, once we have a reasonable number that have committed to an answer do I reveal that There are about 12 million penguins in Antarctica. Out of curiosity, was your number a lot less than that? If so, listen to the episode on Anchoring and Adjustment, which is linked for you in the show notes to find out why. Now, what does this have to do with hindsight bias? If I didn't make people say their answers out loud, commit to something in the moment in a semi public way, even if they sort of thought something in their head when I asked, they don't feel committed. And when the reveal comes, they would not be as surprised. They would think something like yeah, that makes sense. I was tossing around some numbers close to that or something else to help logic them into feeling like they would have gotten there eventually or they would have been close. Saying their own numbers aloud and watching how far off the entire group is as everyone commits in the moment when I reveal just a few seconds later is very powerful in getting this concept to stick in the brain and for people to know that they were in fact wrong. And this is a great segue to my top three tips for combating hindsight bias, which are of course outlined on the freebie worksheet for this episode. If you want to download it and take some notes, it's on the Show Notes page@the brainybusiness.com 16 7. And of course, if you're already on our list, you have access to all the freebies within our free global community. The Be Thoughtful Revolution. So here are those top three tips. Number one Be comfortable admitting that you don't know or were surprised. 2. Take notes beforehand. 3. When reviewing what happened, think through other outcomes that could have happened and what would have made that be the case. How easily could things have been different? What information might you be missing? These may seem really simple on the surface, and in many ways they are. However, in practice they're a lot more difficult, especially at first, because you're trying to overcome a natural tendency of your subconscious brain. Before we close out the episode, I want to break each of these down just a bit. First, I'm being comfortable admitting you don't know or were surprised. Like I talked about on the recent episode about negative reviews, ostriching is not a good strategy. Not knowing that you have cancer doesn't make you have it any less and arguably makes things worse. Not knowing your weight doesn't make you weigh less. Not admitting to yourself or realizing that you don't know something doesn't make you know it or keep you from being burned by it. You get the idea. The great thing is, knowing that most of your competitors are falling victim to the hindsight bias gives you a really easy opportunity to win. They're overconfident and missing pieces of the puzzle and using incomplete information to make decisions. But you don't have to. When you admit that you were surprised by something or that you didn't know the answer, it allows you to ask why. Simply saying how interesting. I wonder why that happened and being willing to admit in front of others that your guess was way off and why that can be a good thing is a huge win in and of itself. The second tip, writing things down ahead of the result is a great way to support you in that endeavor. To make this point, I want to refer back to the interview with Matthew Confer from a few weeks back, where he talked about the three things everyone must do before making a decision, as outlined in his really great TEDx talk. One of those tips was to do a pre mortem. In a pre mortem, you think about what could happen and what could go wrong, so you can essentially learn from a mistake before you make it. In many ways, that's helping you to fight hindsight bias before it can impact you. If you have a decision diary or evaluation notebook or whatever you feel like calling it, whether it's handwritten or virtual, you can keep track of those thoughts in advance and reflect upon them to keep your hindsight bias in check when the results are in. And remember, of course, that your insights are only as good as the notes you take. If we take the political race as an example and you just write the name of the person you think is going to win, that doesn't do much for you at the end. You may as well have flipped a coin. The evaluation is kind of a wasted effort. If instead you do some digging and say I think this candidate will win because the polls show this, and after this speech this happened and in the last election that happened, and then also write a version of what might lead to the other candidate winning and other things you know that you chose not to have be part of your decision making and why, and maybe list out some things that you don't or can't know that could be playing into the outcome. That makes for a much different analysis. On the other side, if those things that seem so obvious in hindsight that you otherwise may reason as things you knew on some level are in your notebook, written down as things you don't or can't have the answer to now because of xyz, it's a lot harder to argue with. Clearly you don't want to do this for every decision and moment in your life and work. It would take way too much time and not be worth the effort. However, it is worth doing on big projects and as you're practicing, pick some little tests to get comfortable with that first tip of admitting you were wrong or didn't know the answer. When watching a game show, make use of that pause button and write down your answers before they're revealed on screen. When watching sports, commit to the team you think will win and why and write it down somewhere. It doesn't really matter what you choose, just get into the habit of writing those suspicions or ideas down up front as well as how you came to the conclusion so you can evaluate it properly in a post mortem and learn about your own decisions and flaws in your decision making process that you can learn from in the future. And that brings us to tip three, which essentially we fought half the battle of with tip 2. This one is all about reviewing what happened, thinking through other outcomes that could have happened and what would have made them be the case, asking questions like how easily could things have been different? What information might you be missing or overlooking and things like that. It's like the stories or movies where you see something from a different angle, whether it's the movie Sliding Doors, Knives out, or my very favorite musical of all time, Wicked. While these aren't true stories, they represent many circumstances in real life that could be similar, so we shouldn't discount them. Assuming something like Wicked was based on a true story. All the background in the early lives of Elphaba and Glinda happened, whether we acknowledge it, see it, recognize it or not. And there's value in knowing these facts as you explore what happened and learn from them for future events. If you look at something that has happened and feel inclined to say that this is definitely why and I knew it all along, Take a moment to think about what the story might be like if someone else was the hero. What if someone else was the villain? Where is the butterfly flapping its wings that you didn't yet consider? Take the time to ask questions, consider outcomes, and take notes. And for bonus tip number four, don't put too much weight in finding the exact answer and using it as a general rule of thumb for all similar decisions moving forward. As with most everything I talk about on the show, context matters. We need to use the subconscious rules of thumb to make choices. But don't rely too heavily on your brain when it wants to say I saw this before and it looks similar, so I know for sure it will apply again here. That overconfidence often does not serve you well, especially when there's a really big and important decision to be made. It's very possible that after evaluation, your initial thought actually does apply here and ends up being right. And that's great. And it doesn't mean that the extra thought and evaluation was in vain. It can give you the confidence to know that you are making a good decision or that you are in a good space and just understand the context of everything a little bit better so that you can explain why you made that choice into the future and to know why and how you can make similar decisions even better the next time around. Now let's wrap up those top tips again for overcoming hindsight bias as we close out the show. Number one, Be comfortable admitting that you didn't know or were surprised. 2. Take notes beforehand. 3. When reviewing what happened, think through other outcomes that could have happened and what would have made that be the case. How easily could things have been different? What information might you be missing? And bonus tip number four don't assume any conclusion is going to be perfect and generalizable. Don't accept it as the gospel truth for every future decision. And remember to use your freebie worksheet that's waiting for you in the Show Notes, along with links to the past episodes from concepts and interviews mentioned on the show, and articles with more insights on hindsight bias. They're all waiting for you at the brainy business.com167 or within our free global community, the Be Thoughtful Revolution. If you're already a member, great. If you're not, there's a link to join within the show notes as well. And when you download any freebie, you end up becoming a member. So I look forward to seeing you and chatting about Hindsight bias there within the group. And just like that, episode 167 on hindsight bias is done. Next week I'll be joined by Dr. Michelle Nigella to discuss how brands can use the senses to increase sales and the upcoming Neurou Conference, at which I am delighted and honored to be a speaker. It's going to be a lot of fun. You don't want to miss it. Until then, thanks again for listening and learning with me, and remember to be thoughtful.

Thank you for listening to the Brainy Business Podcast. Molina offers virtual strategy sessions, workshops and other services to help businesses be more brain friendly. For more free resources, visit thebrainybusiness.com.