Going into business for yourself is scary. Despite all the potential rewards, compared with getting a safe job with a big firm, being an entrepreneur means accepting huge risks.

All entrepreneurs know that there are no guarantees and that new businesses fail at a frighteningly high rate. Still many manage to convince themselves that their venture will be different.

As you might expect, as a group entrepreneurs are remarkably optimistic about their chances of succeeding (otherwise why bother?).

One study asked 705 entrepreneurs who were about to start up a new business how they estimated their chances of success (Casser & Craig, 2009). When the researchers got back to them a while later about 40% had quit their new business. This 40% were then asked: what did you think your chances of success were before you started?

The first time they estimated their chances of success, before their business failed, they guessed, on average, 77.3%. Afterwards they recalled this figure to be 58.8%.

In other words the failure of their business had made them revise their original estimate downwards. With hindsight, then, the actual outcome had become more predictable.

Hindsight is always 20/20

This research into entrepreneurs demonstrates a widespread bias in human thought. The hindsight bias is our tendency towards thinking that things must have turned out the way they actually have.

It's one example of a whole range of studies going back decades. Research carried out on professionals and lay people alike has confirmed the finding. Time and again, the outcomes of medical diagnoses, legal decisions, elections and sporting events seem more likely after the answer is known.

We display this bias across many different areas of life. The things that happen to us seem more like they were meant to happen. This is partly because of our drive to make sense of the world; it's comforting to feel we can predict what is happening to us and why.

Under some circumstances, the hindsight bias is particularly strong:

1. The impression of inevitability. The hindsight bias is stronger when you can easily identify a possible cause of the event. For example, your bag was stolen because you're a tourist.
2. The impression of foreseeability. The hindsight bias is stronger when you are you less surprised by what happened.

The hindsight bias can be a problem when it stops us learning from our mistakes. If the entrepreneurs knew how biased their estimates of success were, would they have done things differently? If trainee doctors think a diagnosis was obvious all along, how will they learn to consider alternatives?

So psychologists have looked at ways in which we can correct for the hindsight bias. The main one is forcing people to justify their judgements and think about alternative ways in which things could have turned out. This normally makes people see that things could easily have turned out differently.

Of course, now you know about the hindsight bias, and how it can be corrected, it seems pretty obvious, doesn't it?

Image credit: Jiuck

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