396. Reflecting on the Past: The Reality of Hindsight Bias (Refreshed Episode)

Welcome to episode 396 of the Brainy Business Understanding the Psychology of why People Buy Today's episode is all 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, as you might imagine, with a milestone in episode 400 right around the corner. It's a time where I'm looking back and reflecting a lot. It's easy to say I coulda, shoulda, woulda all sorts of things when looking back. The why didn't I's or how silly of me's because it seems like when we're reflecting, we see everything clearly as it truly is in reality, that isn't true. That's the focus of today's episode, which originally aired in August of 2021. As we dig in on hindsight bias, whether you look back with a positive light, which I typically do, or a negative one, know that hindsight definitely isn't 2020 and that what you see upon reflection isn't necessarily the way things really are or were. This has a huge impact on business and the decisions you make. Finding that balance between learning from past choices and circumstances, but not believing that what you know now is fully accurate for the next situation, or what really happened back then. More of that, of course, as we dig into the episode, don't forget that there are links for everything, including my top related past episodes, books and articles all waiting for you in the show. Notes for this one, which are found within the app you're listening to and at the brainy business.com 396 all right, let's talk about hindsight bias.

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 act 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 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 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 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 pre factual 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. 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.

So what got your brain buzzing as you learned about hindsight bias today? For me, it's so easy to fall into this been there, learned that trap just like everyone else. So I like the reminder that what we see when looking back isn't as black and white as it may seem. As I mentioned in the intro, I've been doing a lot of reflecting recently. The brainy business is growing and changing. We're doing a lot of planning for the next phase of the company, which is so fun and exciting. Approaching a milestone episode is always a time for looking back and so it felt like a great time to give myself this reminder and I figured you'd get some value from it too in.

Two weeks for episode 400 woo.

I am refreshing the episode on Survivorship Bias, which is very much in the same vein of not missing what's missing. So I'm really excited about that. Whatever time of year you're listening to this, take the opportunity to pause, look back at how far you've come forward at where you want to go. What do you know now? What have you learned? What do you just think you've learned that isn't necessarily true? What might be possible if you take the time to be thoughtful? I'm guessing a lot and as always, I would love to hear all about it. Come share it with me on social media. You'll find me as the Brainy Biz pretty much everywhere and as Melina Palmer on LinkedIn. And to make it easy, there are links in the show notes along with links to my top related past episodes and books, a timestamp summary of the episode, and more. It's all waiting for you in the app you're listening to and atthebrainybusiness.com 3. And just like that, episode 396 on hindsight bias is done. Join me Friday for a brand new episode with Jeff Kreisler, Head of behavioral science at JPMorgan Chase. 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. Melina offers virtual strategy sessions, workshops and other services to help businesses be more brain friendly. For more free resources, visit thebrainybusiness.com.