Is Hindsight Bias Holding You Back?

On Steve's Mind: a Newsletter

Latent ProfitToday, I woke up and took a nice Sunday-morning walk around my neighborhood.  As my thoughts were wandering, I began thinking about a product line for my business that I have tried a few times to develop, but without success. “It’s never going to happen,” I caught myself saying.

Why did I think that? Just because it hasn’t happened in the past doesn’t mean it won’t happen in the future. Why can’t tomorrow be different?

Psychologists describe a phenomenon called “hindsight bias,” also referred to as the “knew-it-all-along effect,” in which an occurrence that was only one of many possible outcomes seems, in retrospect, to have been inevitable.  The therapist should have been able to predict that his patient would commit suicide based on things the patient said, shouldn’t he? The CFO should have been able to spot that her controller was embezzling funds, shouldn’t she?

When hindsight bias deceives us into believing that what has happened was inevitable, it can prevent us from exploring possibilities for our future.  If the one road that led you to your present state seems like the only road, it’s easy to see that one road as a fixed path towards tomorrow.

But there is no fixed path towards tomorrow. Your business has an infinite number of possibilities for its future, many of them good, many of them bad. Your job, no matter what your title or position, is to explore those possibilities and create a great future for your organization.  Recognize your hindsight bias, so you can push it out of the way.

It’s Possible to Overcome Hindsight Bias

The first step in overcoming your hindsight bias is to recognize the near-infinite number of possibilities for your organization’s future. Looking backwards, the past looks like a single line leading to today. Going forward, visualize that one line breaking into thousands of lines, all representing possibilities.  Does your past blind you to seeing the best of those possibilities?

How can this kind of hindsight bias limit your business? Do you ever catch yourself saying things like this?

“Our sales pace always falls off at this time of year.”

“That customer will never give us more than 25% of their business.”

“We always launch a spring promotion and a fall promotion, but summer promotions never work.”

“Two-thirds of the salespeople we hire fail, and it will always be that way.”

Every one of those opinions may be based on past trends, but they should not describe the limitations of the future. Recognize that the future is not fixed by the past.

Learn from Your Experiences

Hindsight bias can get in the way of learning from experience.

“If you feel like you knew it all along, it means you won’t stop to examine why something really happened,” observes psychological scientist Neal Roese of the Kellogg School of Management at Northwestern University. If you believe something bad that happened was inevitable, you may not address the situation that caused it. Or, after something good happens, hindsight bias may make you overconfident that it will happen again.   “It’s often hard to convince seasoned decision makers that they might fall prey to hindsight bias,” adds Roese. The same article describes that research has shown “that overconfident entrepreneurs are more likely to take on risky, ill-informed ventures that fail to produce a significant return on investment.”

Psychologist Baruch Fischhoff calls hindsight bias “creeping determinism.”  If we believe that the past was inevitable, it can lull us into thinking that our future is pre-determined, and nothing could be further from the truth. Your future and the future of your organization are not fixed. They are filled with possibility.  Identify the best of those possibilities, and pursue them to create your future.

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Posted in Invent Your Future, Latent Profit, Newsletters

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