Disingenuity of Outcomes
When it comes to decision-making, we frequently succumb to judgment biases, ignore vital information, rely on seemingly inappropriate shortcuts, make non-optimal decisions across a wide range of situations, and misattribute outcomes to sound judgment when in reality, luck was involved.
Errors in risk estimation present a major difficulty that may develop when we make daily judgments, let alone critical ones. This is owing to the fact that when making day-to-day decisions, we lack access to the actual base rates of the vast majority of activities and threats. We need “data” on the regularity with which others engage in acts and the incidence of particular consequences to decide whether our related decisions are within safe and acceptable norms. In the actual world, however, such information is rarely offered to us when we make decisions, leaving us to gather the data ourselves and, even more so, rely on the outcomes of our previous decisions. Studies have shown that we heavily rely on previous outcomes, tend to overestimate tiny base rates, and underestimate high ones.
Base rate is an essential concept in risk perception as it helps to provide context for assessing risk. Base rate refers to the probability of a particular event or outcome occurring in a specific context without any additional information. For example, the base rate of contracting X disease on an island without vaccination is 30%. This means that out of 100 unvaccinated people visiting the island, thirty would be expected to contract X disease. Base rates provide a general understanding of the probability of something occurring, and they can be used to help assess the likelihood of an adverse event or outcome. Moreover, base rates are also crucial in risk perception because they allow individuals to compare risks. For example, if an individual is considering two different activities, they can compare the base rates of each activity to determine which is more likely to cause harm. By understanding base rates, individuals can better assess the risk of other events, evaluate the likelihood of an adverse outcome, and compare the risks of different activities.
Notwithstanding the above, and apart from being inaccessible most of the time, base rates are a type of probabilistic model, which means that they are based on estimated probabilities rather than on absolute certainty. Many judgments are dependent on a multitude of circumstances, and basing decisions exclusively on base rates and historical results misses vital pieces of information, such as those pertaining to the function of context. Therefore, referring to base rates when assessing risks is a beneficial tool that can provide some guidance. However, such references should not be independently, confidently, or overly used because they are probabilistic, prone to bias, do not convey an accurate representation of the prevailing situation or context, and most often are not indicative of current or future outcomes.
The Pitfall of Outcomes
Risk perception is a crucial component of human cognition and decision-making since it dictates how we respond in any given circumstance. Yet, it is only sometimes simple to appropriately estimate the risk associated with a course of action since other variables, such as past results, may impact our sense of risk. The phenomenon known as “outcome bias” occurs when people rely on their present decisions on prior results. This bias may result in mistaking luck for competence, a skewed view of danger, and overestimating or underestimating the hazards associated with confident decisions based on previous success or failure in comparable circumstances.
Misattributing results may harm our decision-making by establishing incorrect perceptions about our skills and the environment around us. For instance, when we attribute success to personal capabilities instead of chance, environment, or other factors, we may create an inflated feeling of self-worth and a false sense of competence, which may drive us to overestimate our ability in future endeavors. Sometimes we mistakenly believe that our achievements at work are solely a result of our own abilities, when in reality, they may be due to chance or the help and support of others. This can lead to poor decision-making, as we may take on tasks that are beyond our capabilities and fail to seek assistance or resources when needed.
The feedback people receive from the outcome of their previous decisions can significantly influence their subsequent decision-making. As a result, people often attribute the consequences of their choices to their ability to make informed decisions. Experience is a critical component of decision-making, especially when it comes to identifying options and assessing their potential outcomes. However, since many choices involve an element of chance, the outcome alone cannot always serve as evidence of a successful decision. This can result in ambiguity and incorrect attribution of outcomes, where a favorable outcome can occur even when poor decision-making skills are used, and a bad outcome can occur despite the use of strong decision-making skills. Additionally, decision-making is often a series of choices made over time rather than a one-time event. The context-dependent and probabilistic nature of outcomes can lead people to interpret certain events as evidence of their good judgment, such as frequently and impulsively crossing a yellow traffic light without incident, even though it may not necessarily be a safe decision.
Relying solely on the outcome of a decision can increase the risk by creating a false sense of security during the decision-making process. When individuals rely too heavily on the results of their previous decisions, they may overlook important information, fail to consider potential risks associated with the situation, and be less likely to evaluate all available options. Moreover, they may become complacent or less vigilant in their decision-making and fail to account for the context, leading to flawed reasoning or inadequate handling of potential hazards and consequences.
The “hot-hand” effect is among the most prevalent types of outcome bias. This effect happens when people overestimate their likelihood of success based on past results. It is the phenomenon in which a person has a string of successes ascribed to an improvement in talent, luck, or other intangible elements. For example, suppose a person has taken multiple successive shortcuts in a dangerous performance and gotten away with it. In that case, they are likelier to believe they will succeed the following time. Individuals make decisions based on prior results rather than the likelihood of failure or the probabilities of success in the current setting.
In addition to the “hot-hand” effect, anchoring bias is another type of outcome bias. Anchoring happens when people base their judgments on a single piece of pertinent information. To illustrate, someone might purchase a stock due to its past track record, despite the fact that the stock’s level of risk may be significantly higher or lower than what the person had initially expected.
It is vital to distinguish outcome bias from other cognitive biases. Although many biases are based on individuals’ subjective evaluations of a circumstance, outcome bias is determined by the actual consequence of an action. Suppose, for instance, a person makes a choice that results in a favorable consequence. In such a situation, they are prone to see the judgment as correct, regardless of its merit. Conversely, if the choice results in a dire consequence, it may be deemed poor. In addition, outcome bias is unrelated to any specific set of ideas and is entirely focused on the result of choice.
Role of Context
We live in a chaotic world where change and uncertainty are fundamental constructs. As such, human judgments are not context-free. On the contrary, they are made within their active environments and are usually plagued with uncertainty and poor knowledge of prospective outcomes or their probabilities. The degree of uncertainty for complicated decisions may be especially high for those whose knowledge is derived from a smaller repertory of prior experiences. Yet, experience and knowledge of previous outcomes alone may not be sufficient for sound judgment due to the ever-changing environment or background (otherwise known as context) of a situation that can shape how decisions are made. Context can have a significant impact on the decisions that are taken and the outcomes that result. When making decisions, it is important to consider the context in which those decisions are being made. This can help to ensure that decisions are made based on all relevant factors rather than simply on impulse or emotion. Overall, context can provide insight into why decisions were made, how effective they were, and any potential biases or assumptions that may have been involved.
Conclusion
Decision-makers should be wary of the dangers of putting too much stock in a single result and be aware of the possible consequences of leaning too heavily on that. Suppose they want to make the best choice possible. In that case, they need to take a comprehensive view of the issue and think about every facet of it, balancing the advantages and disadvantages of each potential course of action and the dangers linked with each one. The people who make decisions should also be prepared to consider fresh possibilities and be open to contrasting their own thoughts with those of their peers. It is vital to be mindful of the possible implications of one’s actions, especially when the balance of benefits and drawbacks is unequal. Failing to do so might result in attributing unexpected events to one’s decision-making ability rather than chance, thereby altering future decision-making.
Even though the desired result may occur several times by chance, it is still necessary to have a clear awareness of the dangers involved. In order to make better judgments and build a more accurate awareness of the dangers we face, we must be conscious of outcome bias. Therefore, the process of making decisions should be approached objectively, focusing on the method rather than the outcome, and emotional responses should be kept to a minimum. This strategy is the essential component for achieving success.
