Thursday, August 1, 2013

The Problem With Hindsight Bias

Hindsight bias frequently comes up in the mainstream media. You’ve likely seen it or read it countless times. It works like this: Something didn’t work out as was expected, so therefore we go back to the time in which it was started and either say or imply, “They should have seen this coming.”

The problem with hindsight bias is it suggests that, if a different approach had been taken, then that approach would have been guaranteed to get results – when there is no guarantee it would have.

To illustrate this, let’s play a game of blackjack.

Let’s assume it’s you against the dealer, it’s the first hand being dealt and the dealer has just shuffled the deck of cards. On the first hand, you are dealt a king and a seven. The dealer’s face-up card is a six.

Do you hit or do you stand?

Let’s say you decide to stand, knowing that the dealer must hit on anything 16 or less and stand on anything 17 or higher. The dealer then turns over his face-down card, revealing a jack. Because he has 16, he must hit.

The dealer takes the next card – and it’s a four. So the dealer wins the hand

If media pundits were critiquing and analyzing blackjack hands, there would be those who would criticize you for standing, saying you should have hit on 17 because then you would have had 21, making it harder on the dealer to win.

So let’s say you decide to hit the next time you have 17 and the dealer has a face-up six. Your next card is a six, putting you at 23, so you went bust. Let’s say the dealer decides to turn the face-up card for you (even if he doesn’t have to) to reveal a card worth 10. Once again, certain media pundits would criticize you for hitting when, if you had stood, the dealer would have been went bust.

So you decide to stand the next time you have 17 and the dealer has a face-up six. He turns the face-down card over, reveals a card worth 10, then the next card he draws is a five. In this scenario, it would not have mattered if you hit or stood – you would lose the hand. Yet the media pundits would still find a way to criticize you, declaring you were a fool for wasting your money on blackjack and that money could have been better spent elsewhere.

In any case, it’s hindsight bias, where the pundit is making judgments based on the results, not on every factor that comes into play. Some of the factors stay the same no matter what (dealer must hit on 16 or less or stand on 17 or higher), some factors are under your control (you have the option to hit or stand, or in some cases, be able to split your hand or double down) and some aren’t under your control (you have no idea what will be the next card dealt).

The problem with hindsight bias is it assumes all factors are under your control. But in every issue people deal with, there are always going to be factors you don’t have under your control.

It is one thing to criticize people for handling factors in which they clearly had control. But it’s important to know what those factors actually are and not assume everything is a factor under a person’s control.

Politicians don’t have as much control over the economy as they and other people may think. An employee can do whatever he or she can to prepare for the future but doesn’t have control over what his or her employer is doing. We can all drive safely on the roads but we can’t directly control what other drivers do. Sports team can choose which free agents to pursue and, when their turn in a draft comes up, can pick from who is available, but they have no way of controlling how well that player will turn out on the field or off the field.

Some may try to control these factors but it doesn’t always work out the way they intend to.

It is fine to hold a difference of opinion, but if one simply bases their opinions on the results, they aren’t looking at the big picture. They are likely trying to prove they are smarter than others and, if it had been them, they would have made a choice that would have worked out.

But the truth is, nobody can say for certain what is guaranteed to work out or how to guarantee that things will work out. Issues are more complex than that and hindsight bias does nothing to point that out.

No comments:

Post a Comment