Outcome Bias

Outcome bias is a cognitive bias defined by Wikipedia as the tendency to judge a decision by its eventual outcome instead of based on the quality of the decision at the time it was made.

Investors judge an investment based on the outcome alone and often disregard the circumstances under which it was made.

Results can come from factors other than the original decision.

To overcome the outcome bias, an investor should take notes about the information available and the decision process at the time of investment.  

The investor can later review the information available to determine the quality of the investment decision.

By separating the decision-making process from the results one can distinguish between good or bad decisions from good or bad results.

There are many exogenous factors in startup investing. 

Investors should gather relevant information and make careful decisions about each investment. 

 

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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.