Research has shown, for example, that overconfident entrepreneurs are more likely to take on risky, ill-informed ventures that fail to produce a significant return on investment. Hindsight bias can also make us overconfident in how certain we are about our own judgments. “It’s often hard to convince seasoned decision makers that they might fall prey to hindsight bias.” “If you feel like you knew it all along, it means you won’t stop to examine why something really happened,” observes Roese.

Ultimately, hindsight bias matters because it gets in the way of learning from our experiences. Furthermore, research suggests that we have a need for closure that motivates us to see the world as orderly and predictable and to do whatever we can to promote a positive view of ourselves. When this narrative is easy to generate, we interpret that to mean that the outcome must have been foreseeable. Research shows that we selectively recall information that confirms what we know to be true and we try to create a narrative that makes sense out of the information we have. The researchers argue that certain factors fuel our tendency toward hindsight bias. And the third level, foreseeability, involves the belief that we personally could have foreseen the event (“I knew it would happen”). The second level, inevitability, centers on our belief that the event was inevitable (“It had to happen”). The first level of hindsight bias, memory distortion, involves misremembering an earlier opinion or judgment (“I said it would happen”). Roese and Vohs propose that there are three levels of hindsight bias that stack on top of each other, from basic memory processes up to higher-level inference and belief. This article is the first overview to draw insights together from across different disciplines. In a new article in the September 2012 issue of Perspectives on Psychological Science, a journal of the Association for Psychological Science, psychological scientists Neal Roese of the Kellogg School of Management at Northwestern University and Kathleen Vohs of the Carlson School of Management at the University of Minnesota review the existing research on hindsight bias, exploring the various factors that make us so susceptible to the phenomenon and identifying a few ways we might be able to combat it. The phenomenon, which researchers refer to as “hindsight bias,” is one of the most widely studied decision traps and has been documented in various domains, including medical diagnoses, accounting and auditing decisions, athletic competition, and political strategy. The problem is that too often we actually didn’t know it all along, we only feel as though we did. The situation may be different each time, but we hear ourselves say it over and over again: “I knew it all along.” The guy in accounting who was secretly embezzling company funds. The tumor that appeared on a second scan.

The fourth-quarter comeback to win the game.

Examples of hindsight bias