“You didn’t know it all along, you just think you did”
---James Montier
According
to Pompian (2006), hindsight bias is the impulse that insists: “I knew it all
along”. Briefly, this is tendency that people believe any situation predictable
when it happened. That is, people think to predict correctly after outcomes of
events.
Hindsight
bias can be related to minds of people. Thus, it can be explained by
neuroscience. Minds of people have strong actual memory so they tend to know
more actual outcomes than past outcomes. That is, people are more prone to recall
actual outcomes than past predictions.
According
to some academic papers, hindsight bias is similarly defined as “individuals,
after receiving outcome information, claim to have “known it all along”. Strength
of hindsight bias is observed individual attitudes, the plausibility of
additional information, and information made available to subjects. For
example, if a trader has much additional information or feedback information,
this can decrease hindsight bias. Hindsight bias can be observed in stock
prices. For example, I choose CCOLA (Coca Cola) stock. I predicted five days
closing price and five days average closing prices. After a period of time, if
my predictions’ deviations are high from initial prices, I have a hindsight
bias. That is, people who have hindsight bias is close to actual.
