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What is behavioral economics? Why does it matter to you?

Podcast Episodes

What is behavioral economics? Why does it matter to you?

167. Hindsight Bias: Why Hindsight is Definitely NOT 20/20, a Behavioral Economics Foundations Episode

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Today’s episode is all about hindsight bias. You have probably heard the phrase “Hindsight is 20/20” and maybe even said it yourself on occasion. Well, I hate to burst your bubble, but this simply isn’t true.
We humans have a hindsight bias that makes us believe we knew something “all along” when reflecting back on an incident, and this can cause all sorts of problems when making future decisions. I will cover this throughout today’s episode as well as tips for how to combat hindsight bias so it has less of an impact on you.

Show Notes:

  • [00:07] Today’s behavioral economics foundations episode is about hindsight bias.
  • [02:21] When we think about our brains and all the amazing things they do, much of what we are accessing are memories.
  • [02:47] Our memories are basically inaccurate renditions our brains tell us and every time we access them, we change them a little. So, the more you think about something, the less and less it is like the original version.
  • [03:28] Memories get further and further from the truth as time goes on, especially for those memories which are recalled again and again.
  • [04:20] Even reading about an event in history, which feels as though it must be fully accurate, is missing details and important pieces that people didn’t even think to include or pay attention to.
  • [06:01] In reflecting back on an event the brain will assume it has all the information on: what happened, why, and assume that it knows what to infer from that for the next time you encounter a situation like this. The problem, of course, is that you don’t have all the information.
  • [08:32] Once the results are in it is easy to say you knew it, and it makes your overconfident, optimistic brain feel good about itself.
  • [09:20] Our brains don’t like to have a misalignment in what we believe to be true. Your brain believes that you are smarter, better, faster, stronger than everyone else (including you 5 minutes ago). So, when something happens differently than you predicted, it looks for ways to resolve that discomfort (that dissonance) by reasoning that you “knew it all along” even when you didn’t – or often couldn’t have known.
  • [10:12] One simple way I combat hindsight bias when doing presentations is by making people commit to an answer or instinct before sharing what the real answer is. 
  • [11:36] If I didn’t make people say their answers out loud, commit to something in the moment in a semi-public way, even if they sort of thought of something in their head when I asked, they don’t feel committed and when the reveal came, they would not be as surprised. They would think something like, “Yeah, that makes sense. I was tossing around some numbers close to that” or whatever.
  • [12:03] Saying their own numbers aloud and watching how far off the entire group is as everyone commits in the moment when I reveal just a few seconds later – is very powerful in getting this concept to stick in the brain.
  • [13:33] Tip #1: Be comfortable admitting you don’t know or are surprised.
Hindsight is far from 20/20, here are Melina's 3 brainy ways to combat hindsight bias using behavioral economics. #behavioralscience #behavioraldesign Click To Tweet
  • [14:17] When you admit that you were surprised by something or that you didn’t know the answer, it allows you to ask why.
  • [14:40] Tip #2: Writing things down ahead of the result.
  • [15:15] If you have a decision diary or evaluation notebook or whatever you feel like calling it (whether it is handwritten or virtual) you can keep track of those thoughts in advance and reflect upon them to keep your hindsight bias in check when the results are in. And remember of course that your insights are only as good as the notes you take.
  • [17:03] It doesn’t really matter what you choose, just get into the habit of writing those suspicions or ideas down upfront and how you came to the conclusion – so you can evaluate it properly in a post mortem and learn about your own decisions and flaws in your decision-making process that you can learn from in the future.
  • [17:27] Tip #3: Review what happened, thinking through other outcomes that could have happened, and what would have made that be the case. Ask questions like, “How easily could things have been different?” or “What information might I be missing or overlooking?”
  • [18:44] Bonus Tip #4: Don’t put too much weight on finding the exact answer and using it as a general rule of thumb for all similar decisions moving forward. Context matters. 
  • [21:11] The Brainy Business was nominated for the best market research podcast of 2021. Vote for The Brainy Business here by August 31!

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