Hindsight Bias

Watch out for hindsight bias when making sense of an event. Hindsight bias, or the
Monday-morning-quarterback effect, is believing that we had better knowledge of the
outcome of an uncertain situation before it occurred than we really did. For example,
assume that an economist projects that mortgage rates will remain level or decrease in the
near term. Several years later when rates increase, the economist falls prey to hindsight
bias when she expresses, “The recent rise in mortgage rates was no surprise; we were
expecting it.” To minimize the susceptibility to this, keep notes of how and why you made
your decisions.

So what?

Hindsight bias limits the learning that we could derive from making a decision. As
a result, it minimizes our opportunity to sharpen our skills for future decision making.