Outcome bias describes a tendency to evaluate a decision based on its outcome and not on the process by which the decision was reached. In other words, the quality of a decision is only determined once the outcome is known. Outcome bias occurs when a decision is based on the outcome of previous events without regard for how those events developed.
Understanding outcome bias
Outcome bias is common in humans because we tend to be self-evaluative. We tend to look back at what we’ve done and use any lessons learned to measure our future performance. This can be a useful trait in some circumstances, but it can also be a problem when something bad happens.
When a decision results in a poor outcome, we tend to place more importance on the outcome of a decision. We may be overly self-critical or indeed critical of others when compared to instances where a decision resulted in a positive outcome. It does not matter if the decision-making process was well considered or if the likelihood of success was down to chance.
This is not to say that outcome bias does not occur when there is a favorable outcome. Consider an individual who decides to invest in real estate after learning that a friend made a significant capital gain. Outcome bias causes the individual to become preoccupied with how much money was made and in the process, ignore the mechanisms behind their friend’s success. Perhaps a government stimulus package for new home builders was a contributing factor, or maybe a combination of low-interest rates and a knack for identifying undervalued property was the cause.
The outcome bias in business
As a result, outcome bias is present in many performance-related situations including:
A hiring manager is only considered successful if the employee they recruit performs well. With less emphasis on the reasoned and fair recruitment process, employees are led to believe that they are either good at their job or bad at their job. When evaluations are based on a binary result and not on the quality of an employee’s decision-making, good luck is rewarded over competence or expertise.
Once an outcome is known, the outcome bias also hinders our ability to evaluate whether a leadership decision was good or bad. Fearful of negative repercussions, outcome bias can make some leaders risk-averse. Conversely, irresponsible leaders who make reckless decisions are rewarded if their decision results in a positive outcome. In this case, the subordinates who doubted the leader’s ability may be subject to harsh treatment from others.
Avoiding outcome bias
Critical thinking is one way of avoiding outcome bias. Instead of focusing on outcomes, we need to focus on the process as a whole.
Like many cognitive biases, however, outcome bias can be difficult to address on our own. We may sabotage ourselves by quitting too early or ignoring certain information we don’t like. In this situation, it can be helpful to collaborate with a colleague or superior to understand the underlying causes of the bias.
In any case, consider these questions:
- What led us to make the decision?
- Was there a better process we could have followed in making the decision?
- Could we have liaised with other people?
- What information did we have at our disposal? What information did we not have?
- Could we have obtained more data?
- Was it necessary to decide at the point the decision was made?
- Were there previously unknown external factors that may have skewed the decision?
- Outcome bias occurs when a decision is based on the outcome of previous events without regard for how those events developed.
- Outcome bias in business tends to occur in the recruitment process, product development, and leadership. Most conspire to create an outcome-centric culture in organizations where one person has to lose for another to win.
- Outcome bias can be avoided with critical thinking and a commitment to focusing on processes. Discussing the bias with a trusted colleague or supervisor can be a good way to uncover its underlying causes.
Main Free Guides:
- Business Models
- Business Competition
- Business Strategy
- Business Development
- Digital Business Models
- Distribution Channels
- Marketing Strategy
- Platform Business Models
- Revenue Models
- Tech Business Models
- Blockchain Business Models Framework