Hindsight bias is when subjects, after learning the eventual outcome, give a much higher estimate for the predictability of that outcome than subjects who predict the outcome without advance knowledge. Hindsight bias is sometimes called the I-knew-it-all-along effect.
Fischhoff and Beyth (1975) presented students with historical accounts of unfamiliar incidents, such as a conflict between the Gurkhas and the British in 1814. Given the account as background knowledge, five groups of students were asked what they would have predicted as the probability for each of four outcomes: British victory, Gurkha victory, stalemate with a peace settlement, or stalemate with no peace settlement. Four experimental groups were respectively told that these four outcomes were the historical outcome. The fifth, control group was not told any historical outcome. In every case, a group told an outcome assigned substantially higher probability to that outcome, than did any other group or the control group.
Hindsight bias is important in legal cases, where a judge or jury must determine whether a defendant was legally negligent in failing to foresee a hazard (Sanchiro 2003). In an experiment based on an actual legal case, Kamin and Rachlinski (1995) asked two groups to estimate the probability of flood damage caused by blockage of a city-owned drawbridge. The control group was told only the background information known to the city when it decided not to hire a bridge watcher. The experimental group was given this information, plus the fact that a flood had actually occurred. Instructions stated the city was negligent if the foreseeable probability of flooding was greater than 10%. 76% of the control group concluded the flood was so unlikely that no precautions were necessary; 57% of the experimental group concluded the flood was so likely that failure to take precautions was legally negligent. A third experimental group was told the outcome and also explicitly instructed to avoid hindsight bias, which made no difference: 56% concluded the city was legally negligent. Judges cannot simply instruct juries to avoid hindsight bias; that debiasing manipulation has no significant effect.
Viewing history through the lens of hindsight, we vastly underestimate the cost of preventing catastrophe. In 1986, the space shuttle Challenger exploded for reasons eventually traced to an O-ring losing flexibility at low temperature. (Rogers et. al. 1986.) There were warning signs of a problem with the O-rings. But preventing the Challenger disaster would have required, not attending to the problem with the O-rings, but attending to every warning sign which seemed as severe as the O-ring problem, without benefit of hindsight.
Continue reading here: Black Swans
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