Definition of Outcome Bias

What is "outcome bias"? What is the definition of the term "outcome bias"?

"Outcome bias" occurs when you judge a decision based on the outcome and not on whether or not it was a good decision at the time.

For instance - you wake up one day before work and check the weather. The weather forecast calls for rain, though you decide not to take your umbrella as you have a feeling that the weatherman isn't going to be correct.

You get home from work and guess what? It didn't rain at all! You think that you made the right decision to not take your umbrella to work.

This is outcome bias - the correct decision, based on the weather forecast, was to take the umbrella with you.

If it had started to rain, as was predicted by professional meteorologists. you would have gotten soaked and your day at work would have been absolutely miserable. There is also a very good chance that you would have gotten sick as a result.

Another example of "outcome bias"?

You decide to sell your shares in a very successful publicly traded company because you want to take a trip to Las Vegas and gamble.

You end up making $50,000 playing blackjack, while the stock essentially trades flat.

You say to yourself - wow! I made the right decision, as I am $50,000 richer than if I had just held the shares.

In reality, this is blatant outcome bias - you made a very questionable decision and were rewarded for your recklessness.

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