14Information Processing Bias #6: Outcome Bias
Insanity is doing the same thing in the same way and expecting a different outcome.
Bias Name: Outcome bias
Bias Type: Cognitive
Subtype: Information processing
Outcome bias refers to the tendency of individuals to decide to do something—such as make an investment in a mutual fund—based on the outcome of past events (such as returns of the past five years) rather than by observing the process by which the outcome came about (the investment process used by the mutual fund manager over the past five years). An investor might think, “This manager had a fantastic five years, I am going to invest with her,” rather than understanding how such great returns were generated or why the returns generated by other managers might not have had good results over the past five years.
Example of Outcome Bias
Jonathan Baron and John C. Hershey of the University of Pennsylvania administered several experiments on outcome bias.1 Subjects were given descriptions of decisions made by others under conditions of uncertainty, together with outcomes of those decisions. Some decisions were medical decisions made by a physician or a patient, and others were decisions about monetary gambles. Subjects rated the quality of thinking that went into the decisions, the competence of the decision maker, or their willingness to let the decision maker act on their behalf. Subjects understood that all relevant ...
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