Friday, November 14, 2014

Hindsight Bias Fallacy Can Do More Harm Than You Think

HindsightFirst, I need to confess that I am falling in love once again... no, not with another person (I am married man) but with a book that I am currently reading. ;-)
The Art Of Thinking Clearly (by Rolf Dobelli) is what I am talking about. It is a compilation of 99 snippet chapters trying to demystify the common thinking "disorder" or "biases" that most of us are suffering (in past, present and probably the future too). Trust me, we all are guilty of at least some of them. Hence, I think I will share more of the relevant fallacies that I've read here.
The fallacy that I am sharing today is hindsight bias. I've read a couple of times from the local personal financial blogs on how they cited sentiment like "On hindsight, I should have..." etc.. Of course, it is always easy to look backward and trying to highlight the "zhun-ness" (accuracy) of what had happened with our earlier prediction. Rolf is trying to highlight that hindsight bias will create a false impression that we are very good with our prediction and cause us to take more risks in the future. I think it is very true especially in the context of investment, trading or even gambling.
What he is trying to highlight is that human nature has the tendency of amplifying what we did right and conveniently forgetting  or omitting what we have done wrong, hence the hindsight bias.
Are you guilty of this bias like I do?
P/S: Click here to check out my post on the Sunk Cost Fallacy.

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