#HINDSIGHT BIAS PSYCHOLOGY DEFINITION TRIAL#
Simpson at his criminal homicide trial in the USA. Trial evidence appears more incriminating to people who believe a defendant has been convicted than for those who believe the defendant was acquitted (Bodenhausen 1990).Ī pernicious example of this phenomena was the elite and popular reaction to the acquittal of actor/athlete O. Hindsight bias also influences citizens' ex post reactions to newsworthy legal decisions.
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Because most legal judgments are made ex post, they are vulnerable to this bias, as documented in a variety of experimental studies (Rachlinski 1998). Hindsight bias is the ex post tendency to overestimate the ex ante likelihood of an outcome, relative to what one would have actually guessed before the event. MacCoun, in International Encyclopedia of the Social & Behavioral Sciences, 2001 2.3 Hindsight Bias In addition, this also rationalizes investments better as it would help keep our emotions out and our confidence in check keeping them grounded.R. This would also help the investor learn from both his mistakes and his successful investments. Here the investor should map all the investment decisions, the reasons behind these decisions, and their respective outcomes. Investors can maintain an investment diary. Envisioning the negative also helps us plan for the unexpected. Researchers Roese and Vohs suggested that in order to counteract this bias one may consider mentally reviewing potential negative outcomes as well which would allow people to gain a more balanced view. Generally, when we are looking at a favorable future we look for information that fits this narrative. Investors with hindsight bias already look at the profitable future they may have based on their decisions.
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Envision both the best and worst possibilities. Based on these the investor may go ahead and take the most appropriate decision. Sticking to objective analysis presents the investors with the pros and cons. Investors can avoid being trapped by their own psyche by following some simple remedies: 1. Also they often only remember the big unexpected event that led to the outcome the last time and not the multiple small events that affected the outcome in other instances. This is flawed as firstly their decisions are not backed by research.
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Following are some of the traits of investors who may suffer from this bias This may encourage them to take up unnecessary risks in the future which may be destructive for the investor. It may lead to them being overconfident with the belief that they possess foresight or intuition. This can be dangerous as even if they might be right due to luck they may go on believing that they earned that success. This is particularly dangerous because if similar patterns repeat themselves in the future they make take decisions based on their faulty predictions which are not backed by research. In adverse conditions when their stock investment may have declined they may even look back and convince themselves that they saw it coming.
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This further pressures them to accurately time stocks always. This is because missing potential purchases or making bad stock investments generally involves sacrificing years of accumulated wealth. Investors are put in a pressured environment when surrounded by stocks. Hindsight bias has the ability to affect our investment decisions just as the bias would affect our predictions in other aspects be it cricket matches etc.