Hindsight Bias in Sales? Oh Yeah.
20/20 - The New Ability to Predict
“Hindsight is another name for uncertainly blind
the doors of perceptions to our hearts they did bind
the illusions of grandeur went all but to waste
when stark reality stood right in my face”
from Hindsight by Fields
The fourth-quarter comeback to win the game.
The tumor that appeared on a second scan.
The guy in accounting who was secretly embezzling company funds.
The rain shower that did interrupt the ride.
The situation may be different each time, but we hear ourselves say it over and over again: “I knew it all along.”
The problem is that, too often, we actually didn't know it all along; we only feel as though we did. The phenomenon is what researchers refer to as hindsight bias.
Hindsight bias occurs when people feel that they “knew it all along” — when they believe that an event is more predictable after it becomes known than it was before it became known.
When we’re looking back at an event after it already happened, knowing that outcome influences our perception of the events leading up to it.
Roese and Vohs identify three distinct levels of hindsight bias that stack on top of each other:
· The first level of hindsight bias, memory distortion, involves misremembering an earlier opinion or judgment (“I said it would happen”).
· The second level, inevitability, centers on our belief that the event was inevitable (“It had to happen”).
· And the third level, foreseeability, involves the belief that we personally could have foreseen the event (“I knew it would happen”).
We experience hindsight bias because our brains are constantly trying to make sense of the world. To do that, we’re constantly connecting causes and effects, connecting chains of events. Understanding cause and effect is an essential skill for survival, but when we succumb to hindsight bias, we oversimplify those explanations, we are taking a mental shortcut. We see unpredictable events as obvious. “I knew it all along,” we end up thinking.
Nobel Prize-winning American economist Richard Thaler believes business executives may be more prone to hindsight bias than people in other fields. In one study, researchers surveyed 705 entrepreneurs from failed startups. Before the failure, 77.3% of entrepreneurs believed their startup would grow into a successful business with positive cash flow. But after the startup failed, only 58% said they had originally believed their startup would be a success.
Such a disconnect clouds business leaders' judgment and ability to learn from the past. It makes people think they can look back at past events and interpret something; it makes them think they have a new ability to predict that something that has happened before is going to happen again.
Businesspeople will decide on a strategy because it worked for them before. But the conditions in the next environment are going to be different: it’s a different market situation, different people, and it’s a mistake to immediately assume that what worked before is going to work again.
Hindsight bias plays a big role in sales: in picking the right sales strategy, the correct predictions of market trends, the best crisis management plan, and other decisions or statements that require someone to take responsibility. Based on the three distinct levels discussed above, here are three examples of statements that strongly indicate hindsight bias:
· “I don’t remember saying that.” - Memory distortion.
· “Anyone could have seen this coming.” - Inevitability.
· “I told you this was bound to happen.” - Foreseeability.
While hindsight bias is complex, it is relatively easy to detect its manifestation in language.
Negative outcomes require an explanation more so than positive outcomes. And then hindsight bias causes us to wrongly assign blame.
Sales were down last quarter. If that’s the case, then you must explain why. Why are sales down?
“I don’t think what we are looking at is my sales forecast. With the competition ramping up their marketing, this was bound to happen. And I believe I spoke to this during our last review.”
Does that sound familiar? But now, let's say sales were exactly what you predicted. In this case, you don’t need to explain yourself.
One more example: the new sales hire does not produce as planned.
“When we discussed whether to hire him, I did express my concerns. The lack of experience in SAAS sales was a clear red flag. And I pointed it out, though no one wanted to listen.”
Talk to us to find out how interim or fractional executives might be the right fit for your business.
__________________
Nir Eyal - Hindsight Bias: Why You Make Terrible Life Choices
Richard Thaler - Interview
Neal Roese, Kathleen Vohs - Perspectives of Psychological Science
Photo by author