Hindsight Bias

The hindsight bias is defined by Wikipedia as the tendency to see past events as being predictable at the time those events happened.

When an investor sees a  startup fail or succeed, early indicators come back to the investor’s mind.

In some cases, investors selectively remember certain events or facts that later confirm the outcome. 

This can lead to overconfidence.  If one believes he can predict the outcome then he’ll make mistakes erroneously thinking he can predict the outcome of any startup.

Oftentimes, success or failure is a combination of factors such as market selection, timing, and team dynamics, and not just one facet of the business.

To overcome the hindsight bias remember you cannot predict the future.

Review the facts of the startup and not just how you feel about it.

Write out your thought process including the facts at hand and the justification for making the investment.

When the outcome of the investment becomes known, you can refer back to the notes to check your decision-making.

Consider other outcomes aside from the one you expect and keep an open mind throughout the process.

Build a decision-making process and focus on it rather than guessing the outcome. 

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.