Saipan — By the time you read this, it is likely that we’re still observing social-distancing rules, and a curfew remains in place. Many businesses are still closed or operating for a few hours only. We’re still wearing faces masks and/or gloves when we go out — if we go out.
Etc. etc. etc.
Writing in The Wall Street Journal in March, Jason Zweig “predicted” that our memory of the Covid-19-induced crash of 2020 won’t be a recollection. It will be a reconstruction, he said, and it will begin with such words and phrases as “Clearly…” or “It was obvious to me that…” or “Everybody knew that…”
Zweig is describing hindsight bias — “the belief, after something happens, that we foresaw that it would occur.” It is this persistent habit of thought, he added, that keeps us from learning from mistakes and leads us to pay too much attention to unreliable forecasts.
“Don’t let yourself be fooled into believing it’s unusual that nobody knows what’s going on right now,” Zweig wrote. “The past makes sense only in retrospect, after our minds burnish it to our liking. The present almost always defies our efforts to make sense of it.”
In his delightful 2013 book, The Art of Thinking Clearly, Rodolf Dobelli devoted a chapter to hindsight bias which he describes as the “I told you so” phenomenon — “one of the most prevailing fallacies of all.”
In 2007, Dobelli said, “economic experts painted a rosy picture for the coming years. However, just twelve months later, the financial markets imploded. Asked about the crisis, the same experts enumerated its causes: monetary expansion under [then-Federal Reserve Chairman Alan] Greenspan, lax validation of mortgages, corrupt rating agencies, low capital requirements, and so forth. In hindsight, the reasons for the crash seem painfully obvious.”
In retrospect, Dobelli added, everything seems clear and inevitable.
“We’re biased to see ourselves in a positive light — we want to believe that we’re rational and smart,” Jason Zweig quoted Deborah Small as saying. She’s a psychologist at the Wharton School at the University of Pennsylvania.
Dobelli said hindsight bias is perilous because it makes us believe we are better predictors than we actually are, “causing us to be arrogant about our knowledge and consequently to take too much risk.”
Dobelli also said (in jest) that we can make a fortune out of such rational and smart folks:
“Put together two stock market forecasts — one predicting that prices will rise next month and one warning of a drop. Send the first mail to fifty thousand people and the second mail to a different set of fifty thousand people. Suppose that after one month, the indices have fallen. Now you can send another email, but this time only to the fifty thousand people who received a correct prediction. The first half learns that prices will increase next month, and the second half discovers they will fall. Continue doing this. After ten months, around a hundred people will remain, all of whom you have advised impeccably. From their perspective, you are a genius. You have proven that you are truly in possession of prophetic powers. Some of these people will trust you with their money. Take it and start a new life in Brazil.”
How to deal with hindsight bias?
“Keep a journal,” Dobelli advised. “Write down your predictions — for political changes, your career, your weight, the stock market, and so on. From time to time, compare your notes with actual developments. You will be amazed at what a poor forecaster you are.
Don’t forget to read history, too — not the retrospective, compacted theories compiled in textbooks, but the diaries, oral histories, and historical documents from the period…. [R]ead newspapers from five, ten, or twenty years ago. This will give you a much better sense of just how unpredictable the world is.”
There’s just one problem, Dobelli said. “Overcoming the hindsight bias is not easy. Studies have shown that people who are aware of it fall for it just as much as everyone else. So, I’m very sorry, but you’ve just wasted your time reading this….”
Zaldy Dandan is editor of the CNMI’s oldest newspaper, Marianas Variety, and author of three books available on amazon.com