Hindsight bias

“I knew it all along” phenomenon

A couple of days ago, I read an interview of an entrepreneur whom I know well personally. According to his words, his company developed almost linearly, from success to success. He told a journalist that the idea of the business crossed his mind many years ago and hasn’t changed much since then. I know that’s not true — he had his ups and downs, great insights, and stupid mistakes. But now he is sure that he knew everything all along. And he does it not because he is a liar.

Britannica defines hindsight bias as “the tendency, upon learning an outcome of an event — such as an experiment, a sporting event, a military decision, or a political election — to overestimate one’s ability to have foreseen the outcome. It is colloquially known as the “I knew it all along phenomenon”. In one of the experiments, participants were asked to make predictions about a result of an upcoming event. Some believed in one possible outcome, some in another. Several months after the event, they were asked to recall their predictions at the beginning of the experiment, and even people who were proved wrong insisted that they had foreseen the outcome that eventually happened. Their memory was biased.

We want to believe that we “know it all” about the world around us because it gives us a feeling of stability and safety. Having to admit that a forecast we made some time ago wasn’t accurate undermines our confidence in our ability to analyze and interpret the events we witness, and this, therefore, is a powerful source of frustration. If somebody insists that he “knew it all along”, and if you clearly remember that he didn’t, don’t rush to judge him. We all do such things because it sustains our self-esteem.

It makes reading prosperous people’s interviews and success stories less valuable than we think. Our memory doesn’t work as a computer hard drive. We create our memories from scratch each time we recall them, and they change time after time. The more often we remember them, the more they are biased, so entrepreneurs who told the stories of their businesses many times lie — and don’t even know about that.

If you like to watch the stories more than reading them, take a look at my YouTube channel.