Suppose that you decide to invest your money in the stock market. You know practically nothing about investing, so you choose a few stocks based on what your gut says. As it turns out, you double your investment in the coming weeks. Does this mean that investing based on your gut instinct was a good decision?
Or if you flip a coin to choose between two options, and you end up with the better option a few times in a row, does it follow that you should flip a coin whenever facing a choice?
These are examples of situations where our decision-making may be influenced by something called outcome bias — an innate tendency to evaluate decisions solely based on the outcomes.
This effect influences decision-makers from students to business executives to football coaches, often causing them to repeat poor decision-making processes. As such, it’s important to understand the outcome bias and how it affects us; it can help you make better, more effective decisions and avoid unnecessary pain and losses in the future.
What Is the Outcome Bias?
Outcome bias is a cognitive bias — a built-in tendency shared by all of us — that describes how we tend to judge past decisions by their results, rather than looking at how the decision was made.
This is considered to be irrational because it focuses on the information that is only available after the outcome is known, and doesn’t consider what the decision-maker knew beforehand and how he or she used that knowledge.
As an example, consider the following:
You are about to go out for a nice, long walk outside, but you notice that there are a few nasty-looking clouds in the sky. You ponder if you should bring an umbrella or not; you definitely don’t want to get caught in the rain, but you also don’t want to carry an umbrella with you for no reason.
To make things simpler, you decide to check the weather forecast: it says there is only a 30% chance of rain. This sounds good enough for you, so you leave your umbrella at home and head out.
However, about half an hour later it starts raining heavily, and you start immediately running back home, soaking wet by the time you get there. You think: “I made a really bad decision”!
In this example, you fell victim to the outcome bias: You knew what the probability of rain was, but you judged your decision to go out after you knew the result.
Consequences
The outcome bias is dangerous because it often makes us blind to the real risks of actions.
For example, if we see that a certain decision led to a good result, we naturally assume that the decision must’ve been well-made and, therefore, should be repeated in the future.
As such, it can cause us to repeat bad processes that will eventually result in negative consequences.
Studies
Jonathan Bron and John C. Hershey, two researchers who first told about this bias, did a number of studies to test how people’s judgment is influenced by it.
In one study¹, the participants were given a questionnaire and asked to evaluate various medical decisions, such as the decision to perform heart surgery, that had either a negative or positive outcome.
The results demonstrated the outcome bias in action: The participants rated those decisions higher that had a positive outcome than those with a negative one, even though the success rates were known and both cases were involved with the same medical procedure.
What to Do About It
Rationally, we should evaluate decisions based on the quality of the decision-making process, not on the final outcomes.
Keep in mind that poor decisions can lead to excellent outcomes, while well-made decisions may yield awful results. This is because, in almost any situation, there are factors outside of our control and information we can’t have. Therefore, the results will be determined by chance to a certain extent.
Thus, if you are able to incorporate the unknown factors into your decision-making, as well as take into account the risks they entail, then the decision you reach must be of high quality — regardless of the outcome.
Related Biases
Outcome bias is similar to hindsight bias, which is the tendency to perceive past events as more predictable than they really are.
Although they are quite similar, the difference between them is that hindsight bias causes an inaccurate view of the past due to a memory distortion of the events, while its relative causes a person to put too much weight on the outcome relative to other information.
References:
¹ Baron, J. & Hershey, J. C. (1988) “Outcome Bias in Decision Evaluation”
Additional reading:
