From Annie Duke’s “How to Decide“
How can you prevent outcome bias or resulting?
First of all what is outcome bias or resulting?
- Outcome bias/Resulting- “a mental shortcut in which we use the quality of an outcome to figure out the quality of a decision.” (p. 3)
- “When people result, they look at whether the result was good or bad to figure out if the decision was good or bad. (Psychologists call this “outcome bias,” but I prefer the more intuitive term “resulting.”)” (p. 3)
- “Decision quality and outcome quality are, of course, correlated. But not perfectly, at least not in most decisions we make, and certainly not when we have only one try at the decision. The relationship between the two can take a long time to play out.” (p. 3)
- “In a single instance (I quit my job and it turned out horribly), it’s hard to say if a bad outcome (or a good one) was because of the quality of the decision. Sometimes we make good decisions and they turn out well. Sometimes we make good decisions and they turn out poorly.” (p. 3)
Examples of outcome bias:
- “You buy a stock. It quadruples in price. It feels like a great decision.
You buy a stock. It goes to zero. It feels like a terrible decision.” (p. 2) - “You spend six months trying to land a new client/customer. They become your biggest account. It feels like a great use of your time and a great decision.
You spend that same six months trying to land the client and you never close the deal. It feels like a waste of time and a terrible decision.” (p. 2) - “You buy a house. When you sell in five years you get 50% more than you paid for it. Great decision!
You buy a house. When you sell in five years the house is underwater. Terrible decision!” (p. 2) - “You start doing CrossFit and after the first two months you have lost weight and gained muscle mass. Great decision!
But if you dislocate your shoulder within the first two days, it feels like a terrible decision.” (p. 3) - “You quit your job to join a promising start-up because it offers you equity. It ends up as the next Google. Great decision!
You quit your job to join a promising start-up because it offers you equity. It fails after a year. You end up out of work for six months and you run through your savings. Terrible decision!” (p. 6) - “You buy stock in an electric car company. It quadruples in price. You’re patting yourself on the back for a great decision.
But if the chance that the stock would quadruple was tiny, while the chance that the stock would go down in value was huge, should you be taking so much credit?” (p. 79)
Why is outcome bias or resulting bad?
- “A necessary part of becoming a better decision-maker is learning from experience. Experience contains the lessons for improving future decisions. Resulting causes you to learn the wrong lessons.” (p. 3)
- “Outcomes cast a shadow over the decision process, leading you to overlook or distort information about the process, making your view of decision quality fit with outcome quality. In the short-term, for any single decision, there is only a loose relationship between the quality of the decision and the quality of the outcome. The two are correlated, but the relationship can take a long time to play out.” (p. 21)
- “You can’t tell that much about the quality of a decision from a single outcome, because of luck.” (p. 21)
- “Learning from experience is what allows you to make better decisions as you go along. Resulting keeps you from sharpening the view into your crystal ball, making you a worse predictor of the future because you skip lessons you could get from the past.
- An insidious cost of resulting is that you don’t question your assessment when decision quality and outcome quality align. When that happens, especially when things worked out, your decisions are more likely to remain unexamined while you just accept your intuition, which tells you, “Nothing to see here.”” (p. 18)
- “Making better decisions starts with learning from experience. Resulting interferes with that learning, causing you to repeat some low-quality decisions and stop making some high-quality decisions. It also keeps you from examining good-quality/good-outcome decisions (as well as bad-quality/bad-outcome decisions), which still offer valuable lessons for future decisions.” (p. 21)
What is hindsight bias?
- “The tendency to believe an event, after it occurs, was predictable or inevitable. It’s also been referred to as “knew-it-all-along” thinking or “creeping determinism.” (p. 29)
- “But there are obvious cues that signal hindsight bias, such as “I can’t believe I didn’t see that coming,” or “I knew it,” or “I told you so,” or “I should have known it.” Training yourself to listen for those mental and verbal cues is a good way to hone your hindsight bias spotting skills.” (p. 30)
- “Resulting makes you think that you know something about whether a decision was good or bad because you know if the outcome is good or bad. Hindsight bias adds to the ruckus caused by knowing the outcome, distorting your memory of what you knew at the time of the decision in two ways: You did know what was going to happen—swapping out your actual view at the time of the decision with a faulty memory of that view to conform to your postoutcome knowledge. You should (or could) have known what was going to happen—to the point of predictability or inevitability.” (p. 29)
Example of hindsight bias:
- “You buy some cryptocurrency. Your investment quintuples. You say to your friends, “I told you so. You should have invested, too!” (p. 30)
- “The cryptocurrency crashes and you lose all the money you invested. You’re kicking yourself, saying, “I should have known to sell at the high!” (p. 30)
- “You’re trying to push a sales deal to the limit and the deal breaks. You beat yourself up that you should have known you were pushing too far.” (p. 30)
- “Within a few weeks, the customer comes back to the table, accepting the deal on your terms. You knew it was a good plan all along and you tell anyone who will listen, “I told you so!” (p. 30)
- “You buy stock in an electric car company. It quadruples in price. You’re patting yourself on the back for a great decision. But if the chance that the stock would quadruple was tiny, while the chance that the stock would go down in value was huge, should you be taking so much credit?” (p. 79)
How can I prevent outcome bias and hindsight bias?
- “The most common thing that people feel like they “knew” is information that reveals itself only after the fact, most particularly, which of the possible outcomes actually happened. Memory creep is the reconstruction of your memory of what you knew that hindsight bias creates.” (p. 33)
- “If you misremember the past, you are going to learn useless lessons from your experience. That can mess you up in two ways:
1. You’re not going to remember what you knew at the time of the decision. That makes it hard for you to judge whether a decision was good or bad. To assess the quality of a decision and learn from your experience, you need to evaluate your state of mind honestly and recall what was knowable or not knowable as accurately as possible.”
2. Hindsight bias makes you feel like the outcome was much more predictable than it was. This can cause you to repeat some low-quality decisions and to stop making some high-quality decisions.” (p. 33)
Use a Knowledge Tracker
- “Our memories aren’t time stamped. When you open a file on a computer, you can see “date created” and “date modified.” Our brains, unfortunately, don’t work like that. Left to your own devices, the memory of your knowledge at the time of a decision can get distorted by knowing the outcome. You can help remedy memory creep by taking the time to deliberately reconstruct what was known before a decision and what was revealed only after the fact.” (p. 34)
- “We can visualize this using a Knowledge Tracker, like so:
Stuff you knew before the decision: The sum of your knowledge and beliefs at the time of the decision. For our purposes here, specifically the stuff you brought to bear on making the decision.
Stuff you know after the outcome: This includes all the stuff you knew before the decision and new stuff that you learned after making the decision. For our purposes here, we’re focusing on new information that revealed itself after the future unfolded however it did.” - “it would be a good idea to journal the “stuff you knew before the decision” while you are in the process of making the decision. It can be hard to accurately recall what you knew before the fact once you already know the outcome. Journaling gives you something concrete to refer back to. Writing down the key facts informing your decision also acts like a vaccine against hindsight bias. Thinking about what you know at the time of the decision in this more deliberative way creates a clearer time stamp, preventing memory creep before it happens.” (p. 38)
- “Making a habit of journaling the outside view and the inside view will help you get better feedback about how you thought about your decision. As the future unfolds, which inevitably changes your perspective, you will have a record of how you viewed the situation at the time, creating a higher quality feedback loop and adding a layer of accountability to your process.” (p. 142)
- “Using a Knowledge Tracker reduces hindsight bias by clarifying what you did and didn’t know at the time of the decision. Detailing what you knew and when you knew it helps prevent stuff that revealed itself after the fact from reflexively creeping into the before-the-fact box.” (p. 34)