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Decomposing Hindsight Bias

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  • Kelman, Mark
  • Fallas, David E
  • Folger, Hilary

Abstract

Traditional accounts of "hindsight bias" inadequately distinguish "primary" hindsight bias from both "secondary" and "tertiary" hindsight bias. A subject exhibits primary bias when she assigns a higher ex ante probability estimate to actual outcomes, secondary bias when she believes that she herself would have made the same estimate of the prior probability of an event before receiving outcome information as she made after receiving it, and tertiary bias when she believes that third parties lacking outcome information were unreasonable if they did not make the same prior probability judgments that subjects now possessing such information make. In our experiments, we find that when people can readily calculate the actual ex ante probability of an outcome, they don't reassess that probability when told what outcomes actually occurred. They reassess only in situations in which they are unable to assess prior probabilities or when given information that the outcome was not simply a result of sampling or chance but the result of an imperceptible feature of the initial situation. Observed primary bias may therefore often be rational. Copyright 1998 by Kluwer Academic Publishers

Suggested Citation

  • Kelman, Mark & Fallas, David E & Folger, Hilary, 1998. "Decomposing Hindsight Bias," Journal of Risk and Uncertainty, Springer, vol. 16(3), pages 251-269, July-Aug..
  • Handle: RePEc:kap:jrisku:v:16:y:1998:i:3:p:251-69
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    Cited by:

    1. W. Kip Viscusi & Richard J. Zeckhauser, 2005. "Recollection Bias and the Combat of Terrorism," The Journal of Legal Studies, University of Chicago Press, vol. 34(1), pages 27-55, January.
    2. Stracca, Livio, 2004. "Behavioral finance and asset prices: Where do we stand?," Journal of Economic Psychology, Elsevier, vol. 25(3), pages 373-405, June.
    3. Paul Brest, 2006. "Amos Tversky's contributions to legal scholarship: Remarks at the BDRM session in honor of Amos Tversky, June 16, 2006," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 1, pages 174-178, November.
    4. Viscusi, W Kip & Zeckhauser, Richard J, 2003. "Sacrificing Civil Liberties to Reduce Terrorism Risks," Journal of Risk and Uncertainty, Springer, vol. 26(2-3), pages 99-120, March-May.
    5. repec:eee:crpeac:v:19:y:2008:i:7:p:1020-1033 is not listed on IDEAS

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