ADMS 2511 Lecture Notes - Lecture 28: Malcolm Gladwell
1 May 2018
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ADMS 2511 Lecture 28 Notes – Hindsight Bias
Introduction
• Sticking with a strategy that has worked in the past minimizes risk, but it will lead to
stagnation.
• Ambitious people with power that can be taken away (most managers) appear to be
espeially risk aerse, perhaps eause they do’t at to gale eerythig they hae
worked so hard to achieve.
• CEOs at risk of dismissal are also exceptionally risk averse, even when a riskier
iestet strategy is i their firs’ est iterests.
• Risk preference is sometimes reversed
• People prefer to take chances when trying to prevent a negative outcome.
• They would rather take a 50–50 gamble on losing $100 than accept the certain loss of
$50.
• Thus they will risk losing a lot of money at trial rather than settle out of court.
• Trying to cover up wrongdoing instead of admitting a mistake, despite the risk of truly
catastrophic press coverage or even jail time is another example.
• Stressful situations can make risk preferences stronger.
• People will more likely engage in risk-seeking behaviour for negative outcomes, and risk-
averse behaviour for positive outcomes, when under stress.
• The hindsight bias is the tendency to believe falsely, after the outcome of an event is
actually known, that we could have accurately predicted that outcome.
• When we have accurate feedback on the outcome, we seem to be pretty good at
concluding that it was obvious.
• As Malcolm Gladwell, author of Outliers, The Tipping Point, and David and Goliath,
rites, What is lear i hidsight is rarely lear efore the fat.
• It’s a oious poit, ut oe that oetheless ears repeatig.
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