Hindsight bias

Hindsight bias – After an outcome is known, hindsight bias makes a trader believe they “knew it all along.” For example, after a market crash, an investor claims they saw it coming despite not acting. This bias inflates confidence and can cause repetition of poor strategies. The definition: “Hindsight bias is when a person looks back at an event and believes they predicted the outcome, even if they failed to act on that ‘prediction’”. In trading, it leads to overconfidence in past calls and underestimation of risk. Automated systems can use decision logs to counter hindsight bias by documenting actual signals at decision time, preventing subjective reinterpretation of past performance.

⬅ Robots Glossary