Hindsight Bias, Risk Perception, and Investment Performance

@article{Biais2009HindsightBR,
  title={Hindsight Bias, Risk Perception, and Investment Performance},
  author={Bruno Biais and Martin Weber},
  journal={Manag. Sci.},
  year={2009},
  volume={55},
  pages={1018-1029}
}
Once they have observed information, hindsight-biased agents fail to remember how ignorant they were initially; “they knew it all along.” We formulate a theoretical model of this bias, providing a foundation for empirical measures and implying that hindsight-biased agents learning about volatility will underestimate it. In an experiment involving 66 students from Mannheim University, we find that hindsight bias reduces volatility estimates. In another experiment, involving 85 investment bankers… 
View via Publisher
publications.ut-capitole.fr
109 Citations
Highly Influential Citations
9
Background Citations
38
Methods Citations
3
Results Citations
6

109 Citations

Citation Type

Citation Type

The Hindsight Bias Effect in Short-Term Investment Decision-Making
A major problems facing investors is their faulty tendency to believe in their ability to foresee the performance of financial assets based on their past performance. This phenomenon, called…
Never underestimate your opponent: Hindsight bias causes overplacement and overentry into competition
Investors’ Short Term Decision Making and Review of the Hindsight Bias Effect
An important bias in the field of cognitive psychology describes a situation in which individuals are required, ex-post, to estimate the objective likelihood, ex-ante, for a particular event to take…
Hindsight Bias And The Evaluation Of Strategic Performance
This article reviews the literature on hindsight bias and applies it to the context of strategic performance evaluation. Hindsight bias, the tendency for people to view an event as more foreseeable…
Hindsight Bias
  • N. Roese, K. Vohs
  • Psychology
    Perspectives on psychological science : a journal of the Association for Psychological Science
  • 2012
TLDR
New technologies for visualizing and understanding data sets may have the unintended consequence of heightening hindsight bias, but an intervention that encourages people to consider alternative causal explanations for a given outcome can reduce hindsight bias.
Second-order Beliefs and the Individual Investor
In a panel survey of individual investors, we show that investors’ second-order beliefs—their beliefs about the return expectations of other investors—influence investment decisions. Investors who…
Loss Averse Preferences, Performance, and Career Success of Institutional Investors
Using survey-based measures of mutual fund manager loss aversion, we study the effects of institutional investor preferences on their investment decisions, performance, and career outcomes. We find…
On the Failure of Hindsight-Biased Principals to Delegate Optimally
TLDR
It is shown that the hindsight bias can lead to inefficient delegation decisions and that hindsight-biased subjects more frequently fail to delegate optimally than subjects whom the authors have classified as not hindsight biased.
The Effect of Investor Bias and Gender on Portfolio Performance and Risk
We survey 84 finance and accounting majors to determine the behavioral factors that males and females exhibit when making investment decisions. The survey results are linked to student performance in…
Behavioral biases in economic and financial knowledge: Are they the same for men and women?
Contemporary research documents various psychological aspects of economic thought and decision-making. The main goal of our study is to analyze the role of the hindsight bias (Fischhoff [20]) and the…
...
1
2
3
4
5
...

References

SHOWING 1-10 OF 45 REFERENCES
Hindsight Bias and Investment Performance
Once they have observed information, hindsight biased agents fail to remember how ignorant they were initially. This bias has been amply documented by the psychological literature. To study its…
Hindsight bias in economic expectations: I knew all along what I want to hear.
TLDR
The results support the notion that hindsight bias is a reconstruction bias in which self-serving tendencies can influence the reconstruction selectively for favorable and unfavorable outcomes.
Do Biases in Probability Judgment Matter in Markets? Experimental Evidence
Microeconomic theory typically concerns exchange between individuals or firms in a market setting. To make predictions precise, individuals are usually assumed to use the laws of probability in…
Judgmental Overconfidence, Self-Monitoring and Trading Performance in an Experimental Financial Market
We measure the degree of overconfidence in judgment (in the form of miscalibration, i.e., the tendency to overestimate the precision of one’s information) and self-monitoring (a form of attentiveness…
The Curse of Knowledge in Economic Settings: An Experimental Analysis
In economic analyses of asymmetric information, better-informed agents are assumed capable of reproducing the judgments of less-informed agents. We discuss a systematic violation of this assumption…
First Impressions Matter: A Model of Confirmatory Bias
Psychological research indicates that people have a cognitive bias that leads them to misinterpret new information as supporting previously held hypotheses. We model such confirmatory bias in a…
Do professional traders exhibit myopic loss aversion? An experimental analysis
Two behavioral concepts, loss aversion and mental accounting, have recently been combined to provide a theoretical explanation of the equity premium puzzle. Recent experimental evidence suggests that…
Information Projection: Model and Applications
TLDR
This paper introduces the concept of such information projection and provides a simple but widely applicable model that describes a novel agency conflict in a frictionless learning environment and applications to defensive medicine are discussed.
Motivational interpretations of hindsight bias: An individual difference analysis
When individuals learn the outcome of an event or the correct answer to a question, they overestimate its prior predictability: that is, they tend to believe they “knew it all along.” Cognitive and…
Overconfidence and trading volume
Theoretical models predict that overconfident investors will trade more than rational investors. We directly test this hypothesis by correlating individual overconfidence scores with several measures…
...
1
2
3
4
5
...