Lesson 5: Concentrate on the process, not the outcome

Quite often we do not expect something to happen until it does. Only then do we see the forces that triggered the event, and feel unsurprised. Outcomes appear as if they should have been foreseeable.

Sadly, we are more likely to blame decision makers bad choices, rather than praise them for good choices. As the 19th century philosopher Søren Kierkegaard said, “Life is lived forwards, but understood backwards.”

“Hindsight bias” is the almost irresistible tendency to believe — after a sports game or an investment — that the outcome was foreseeable. After your favourite team loses (“the manager made a bad decision taking off the star player”), or the stock market drops (it “was due for a correction”), the outcome seems obvious — and thus blameworthy.

Separate skill from luck

Often we tend to think that the past was preordained, that there was no alternative future that could have happened. But as we know right now the future is anything but set in stone.

Yet, when a series of decisions turn out well we typically start to get overconfident. As the psychologist Daniel Kahneman illustrates, hindsight bias stands in the way of us getting the feedback we need to improve future decisions, “The illusion that we understand the past fosters overconfidence in our ability to predict the future.”

When a decision turns out well it’s important to separate what was luck from what was skill. If you can figure that out, you can improve future decisions and understand what you did correctly. Similarly, when a decision turns out bad understanding what was the best move relative to the probabilities, and that despite the outcome should be repeated in the future is just as significant.

How to avoid hindsight bias and make better decisions

  • Use a decision journal: Record your justification for a particular decision. Note the evidence that you used to make it and include your thoughts on the likelihood of it occurring.
  • Pre-mortems: Before you make a decision think about what the future could look like if the decision was incorrect; how did the decision go wrong, where were the flaws in the argument, and what could you have done differently? Forcing yourself to think about the decision from another perspective can sometimes open up new ways of thinking.
  • Seeking feedback: Get the views of other people who have had to make a similar decision in the past — remember there are very few decisions that we make that are genuinely unique.

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