Why Doing the Right Thing Can Sometimes Feel So Bad, or How Hindsight Bias Clouds Our Decision Making Process

Making decisions is tough.  Knowing how events will play out so that knowing you are taking the right course of action is impossible.  We all know that, or at least we tell each other that on a daily basis. Perhaps you may have consoled a friend who was beating herself up over a decision that did not work out.  Perhaps you told her, “You couldn’t know that things would turn out this way.  You made your best decision in light of all information.”  But yet, in our own heads, ruminating decisions we’ve made ourselves, we somehow can tend to believe that we had seen events playing out as they did all along.  It’s called hindsight bias; others may refer to it as armchair quarterbacking.

It is one of the ways that our minds play tricks on us.  It is sort of an ego stroking exercise where we like to believe we possess some superhuman intuitive strength.  After the fact all the events that transpired all seem to be so logical, that it seems like it made sense the entire time.  Case in point the 2016 election.  In the weeks following the election, all pundits came out and pronounced how horribly Hillary Clinton mismanaged the election.  She should’ve campaigned more in Wisconsin, Michigan, and Pennsylvania. 

If only she’d paid more attention to those battleground states, she would’ve won.  But yet during the weeks leading up to the election, no one was saying anything about her lack of attention to those states.  No one foresaw the impact of her not campaigning there until after the fact, at which time it was ever so obvious.  But yet, like Hillary Clinton, none of us can be in all places at once.  Like Robert Frost, we ultimately must choose one road to take. 

Investing is like that.  Looking backwards, the performance of a particular stock, or the stock market in general, always seems to be more obvious than it was at the time we had to decide whether to buy or not.  From about 1987-2004 Apple stock was pretty much stuck trading around $1/share.  Looking back it seems obvious that this company would go on to become the first company to eclipse the $1 trillion market cap.  But yet clearly it wasn’t, otherwise, it wouldn’t have stayed at the low level for so long.  We don’t have the benefit of a crystal ball, so we shouldn’t pretend we do.  But subconsciously we still do.

One mental model for combating this tendency is to take notes ahead of a crucial decision.  Jot down why you are making the decision you are making, so that down the road, when you are re-hashing the decision you can re-examine the information that you had at your disposal at the time.  Another mental model is to do a “pre-mortem” at the time you are planning.  Compare the different choices you are debating and then try and forecast into the future why each one may have failed.  Comparing your notes with future events will help you understand how some of your intuition may have been accurate, and how some of your beating yourself up for not knowing is just your mind playing tricks on you. 

Decision making is always tough.  We are bombarded with tons of emotional interferences designed to cloud our judgement.  Analyzing the information we have on hand is the best method of for making informed decisions.  Applying some extra mental models is a good way of helping become ok with not being perfect.

Thanks for reading. 

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