For example, if the wheel landed on 60, participants were more likely to choose a higher number than if the wheel landed on 20. Participants were more likely to choose a number closer to the number picked by the wheel. Finally, the researchers asked the participants to make a prediction of how many countries in the U.N. were African countries, and then asked whether that number was higher or lower than the number. (Let’s say it was 60.) They then asked participants to think about how many countries in the U.N. The researchers spun the wheel and it landed on a number. Tversky and Kahneman’s study started with a wheel with numbers from 1 to 100. (In fact, they were some of the first researchers to look at hindsight bias!)

Tversky and Kahneman were two psychologists who looked extensively at biases. Studies on the anchoring effect don’t just look at prices (although many of them do.) One of the most fascinating studies on the anchoring effect took place in the 1970s. Who Came Up With the Term “Anchoring Bias?” But if the same person first sees paper towels on sale for $1, that $3 price tag looks excessive. After all, if they first see paper towels sold for $5 in a store, but then look over to another brand that is selling the same product for $3, they are more likely to think that price is cheap. Anchoring determines what people are willing to pay for products.

This is a huge phenomenon in the world of sales and economics. But you feel very different about that price based on the information that your beliefs are anchored to. You and your grandparents are both looking at a gallon of gas at $2.20. To you, $2.20 for a gallon of gas isn’t expensive – in fact, it’s a pretty good deal. When you were younger, gas prices might have been as high as $5. Therefore, $2.20 for a gallon of gas is expensive.

When your grandparents were younger, they learned that gas was valued at 50 cents a gallon. That information influences how we perceive any supplemental information, even if it’s received years later. Often, this information is the first piece that we learn. The anchoring effect explains that we tend to cling onto one set of beliefs or information. This video is all about the anchoring effect. But they speak to an effect in psychology that can drastically affect the way we make decisions. These two opinions may appear to be saying the same thing. But what you’re hearing is that gas was cheaper then. In a learning process, we should ideally keep in mind that we had, before learning the actual outcome of an event, some erroneous beliefs.Have you ever been to a restaurant or a store with your parents and grandparents and heard them complain about prices? Or they tell you, “Back in my day, gas was only 50 cents a gallon!” What they’re trying to tell you is that gas is expensive nowadays. We must be careful not to confuse hindsight bias with our normal learning capacity: hindsight bias only appears when, upon learning the outcome of some event, we forget the belief we had before learning what really happened. The person 'anchors' their belief in their post-outcome perspective and is unable to recall what they believed before the event in question occurred. In most cases, we modify the beliefs we had about the event prior to its outcome, and subsequently perceive the outcome of the event to have been more predictable than it was. Three forms of hindsight bias have been documented to date: memory distortion, overestimation of the predictability of an event, and the impression that the outcome of the event was predetermined. Once we know the outcome of an uncertain event (such as a political election, for example), we tend to say that we knew the outcome 'from the start', even though this would not have been possible. Hindsight bias is the tendency to overestimate our ability to predict the outcome of an event after the outcome has been realized.

Hindsight bias psychology example