Hindsight bias suggests that one day you’ll look back on all of this and… lie
It’s springtime in the year 2030. You’re looking back at the crash of 2020, the devastation it dealt your portfolio and how you behaved as an investor.
What will you say?
If human nature is any guide—and, let’s face it, it is—your accounts of what happened will begin with such words and phrases as “Clearly…” or “It was obvious to me that…” or “Everybody knew that…” In the future, your memory of the crash of 2020 won’t be a recollection. It will be a reconstruction, built partly from what is happening now and largely from what you learn later about what hasn’t happened yet.
I’m describing hindsight bias—the belief, after something happens, that we foresaw that it would occur. That intuition keeps you from learning from mistakes, leads you to pay too much attention to unreliable forecasts and makes you mismeasure your tolerance for risk. Fortunately, you can work around it.
Jason Zweig – The Wall Street Journal – March 20, 2020.
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