Prospect Theory is a psychological framework that explores how individuals make decisions in uncertain situations. Key concepts include the value function, which describes how people assess gains and losses, and loss aversion, where losses are more impactful than equivalent gains. Decision-making involves phases such as editing, evaluation, and choice. Prospect Theory also highlights biases like the endowment effect and sunk cost fallacy. This theory finds applications in behavioral economics, finance, and marketing.
Value Function: Prospect Theory introduces the concept of a value function, which represents how individuals perceive gains and losses. It suggests that people tend to be risk-averse when it comes to gains and risk-seeking when it comes to losses.
In the domain of gains, individuals exhibit diminishing sensitivity to increasing amounts. In other words, the perceived value of additional gains decreases as the amount of gain increases.
In the domain of losses, individuals exhibit increasing sensitivity to losses as they grow larger. Losses loom larger in people’s minds, and they become more risk-seeking in attempts to avoid losses.
Reference Point: Central to Prospect Theory is the idea of a reference point, a baseline against which outcomes are evaluated. Gains and losses are defined relative to this reference point.
Gains are measured as positive deviations from the reference point.
Losses are measured as negative deviations from the reference point.
S-Shaped Value Function: The value function follows an S-shaped curve, reflecting the nonlinear way in which people evaluate outcomes. This curve illustrates that individuals are more sensitive to changes in probabilities and values near the reference point.
Components of Prospect Theory
Gains and Losses: Prospect Theory distinguishes between decisions involving potential gains and those involving potential losses. People’s risk preferences differ in these two domains.
Reference Point: The reference point is central to Prospect Theory and can vary depending on the individual and the context. For example, in investment decisions, the reference point might be the initial investment or the current portfolio value.
Value Function: The value function describes how individuals perceive gains and losses. It is characterized by diminishing sensitivity to gains and increasing sensitivity to losses.
Probability Weighting: Prospect Theory incorporates the concept of probability weighting, which means that individuals often do not treat probabilities in a linear manner. Small probabilities are overweighted, while moderate to high probabilities are underweighted.
Real-World Applications of Prospect Theory
Prospect Theory has wide-ranging applications in various fields:
Finance and Investment: Prospect Theory helps explain why investors might be risk-averse when it comes to potential gains (e.g., avoiding risky stocks with uncertain returns) and risk-seeking when facing potential losses (e.g., holding onto losing investments in the hope of breaking even).
Marketing and Consumer Behavior: Marketers leverage Prospect Theory to design promotions and pricing strategies that appeal to consumers’ risk preferences. For example, buy-one-get-one-free offers capitalize on the perception of gaining something for free.
Public Policy: Understanding how people evaluate risks and rewards informs public policy decisions. For instance, policymakers consider Prospect Theory when designing healthcare plans, where the framing of choices can influence individuals’ decisions.
Legal and Judicial Decisions: Legal professionals may apply Prospect Theory to understand how jurors or judges perceive gains and losses in legal cases, potentially affecting trial strategies.
Impact and Significance of Prospect Theory
Prospect Theory has had a profound impact on our understanding of decision-making. It challenges the traditional economic assumption of rational decision-making based on expected utility theory.
Some key contributions and implications of Prospect Theory include:
Behavioral Economics: Prospect Theory is a foundational concept in behavioral economics, a field that explores how psychological factors influence economic decisions. It has opened the door to studying cognitive biases, bounded rationality, and other non-standard decision-making behaviors.
Irrationality in Decision-Making: The theory highlights the ways in which individuals deviate from rationality in their decisions, particularly when faced with risk and uncertainty. This recognition of irrationality has reshaped economic and psychological research.
Framing Effects: Prospect Theory introduced the concept of framing effects, showing that the way choices are presented or framed can significantly impact decision outcomes. This insight has practical applications in marketing, advertising, and public policy.
Loss Aversion: Loss aversion, a core element of Prospect Theory, has been widely studied and validated. It explains why people often go to great lengths to avoid losses, even if it means taking on more risk.
Investor Behavior: The theory has provided valuable insights into investor behavior and the psychology of financial markets. It helps explain phenomena like the disposition effect (the tendency to sell winning investments and hold onto losing ones).
Case Studies
Investor Behavior:
An investor who experiences a significant paper loss on a stock may hold onto it, hoping it will recover (loss aversion). Conversely, they might quickly sell a stock that has gained a modest profit to “lock in” their gains (risk aversion in the domain of gains).
Pricing Strategies:
Online retailers often use the “anchor and adjust” strategy. They show the original price (the anchor) alongside the sale price, making consumers perceive a greater value (prospect framing).
Insurance Decisions:
People may be more willing to purchase insurance coverage for rare and catastrophic events (like earthquakes) but less likely to buy coverage for common and smaller losses (framing effect).
Marketing Campaigns:
A car advertisement may highlight how much money a buyer can save (gain framing) rather than emphasizing the full price of the vehicle (loss framing).
Public Policy:
Governments may promote public health by framing anti-smoking campaigns in terms of the potential losses (health risks) rather than gains (health benefits) to deter smoking.
Sports Strategy:
In a game, a team that is losing may take more risks and adopt a risk-seeking strategy (prospect theory) to try and catch up, even if it increases the likelihood of further losses.
Negotiations:
In negotiations, individuals may resist making concessions, even when it is in their best interest, due to loss aversion and the desire to avoid the feeling of losing.
Consumer Choices:
When purchasing a car, a consumer might be more influenced by the prospect of avoiding a higher interest rate (loss framing) than by the prospect of gaining a lower interest rate (gain framing).
Key Highlights
Framework for Decision-Making: Prospect Theory is a psychological framework developed by Daniel Kahneman and Amos Tversky in 1979. It explains how individuals make choices under conditions of uncertainty.
Value Function: At the core of the theory is the concept of a value function. People evaluate potential outcomes relative to a reference point, with diminishing sensitivity to changes. Gains and losses are assessed in relation to this reference point.
Loss Aversion: A fundamental insight is that individuals tend to dislike losses more than they value equivalent gains. This loss aversion leads to risk-averse behavior in the domain of gains and risk-seeking behavior in the domain of losses.
Phases of Decision-Making: Prospect Theory describes three phases of decision-making: editing, evaluation, and choice. During editing, individuals define the problem and frame it in terms of gains and losses. Evaluation involves assessing potential outcomes and their probabilities. Choice is the final selection of the option perceived as most favorable.
Biases and Anomalies: The theory highlights various cognitive biases and anomalies, such as the endowment effect (overvaluing items one owns) and the sunk cost fallacy (persisting in an endeavor based on prior investments, even with minimal future benefits).
Applications: Prospect Theory has practical applications in fields like behavioral economics, finance, marketing, and public policy. It helps explain deviations from traditional economic rationality and guides decision-making strategies.
Real-World Examples: Examples of Prospect Theory in action include investor behavior, pricing strategies, insurance decisions, marketing campaigns, and negotiations. These examples demonstrate how framing, loss aversion, and subjective evaluations influence choices.
Behavioral Insights: Understanding Prospect Theory provides valuable insights into how individuals perceive risk, make financial decisions, and respond to various incentives and framing techniques.
Implications for Policy: Public policy-makers can use Prospect Theory to design interventions that influence behavior, such as encouraging healthier choices or promoting environmentally friendly actions.
Continuous Research: Prospect Theory remains a subject of ongoing research and continues to shape our understanding of human decision-making in both academia and practical domains.
Conclusion
Prospect Theory has revolutionized our understanding of human decision-making, particularly in situations involving risk and uncertainty.
By recognizing that people do not always make rational choices based on expected utility, Prospect Theory has paved the way for the study of behavioral economics and the exploration of cognitive biases.
Its concepts, including the value function, reference points, and loss aversion, have practical applications in finance, marketing, public policy, and many other fields.
Prospect Theory reminds us that the human mind is a complex and sometimes irrational engine, shedding light on why we make the decisions we do and how we can better understand and navigate a world filled with uncertainty.
Related Concepts
Description
When to Consider
Expected Utility Theory
Expected Utility Theory is a normative model of decision-making under uncertainty that assumes individuals make choices by maximizing expected utility, where utility represents subjective value or satisfaction derived from different outcomes, and probabilities reflect the likelihood of those outcomes occurring. It suggests that people evaluate risky options based on their expected payoffs and probabilities, preferring options with higher expected utility. Expected utility theory provides a framework for rational decision-making but has been criticized for its unrealistic assumptions and inability to account for behavioral biases and preferences observed in empirical studies. Understanding expected utility theory helps distinguish normative principles of rational choice from descriptive models of decision behavior.
When discussing decision-making models and economic theories, particularly in understanding the principles of rational decision-making under uncertainty, and in exploring the limitations and criticisms of expected utility theory in explaining observed decision behavior and deviations from rationality in various domains such as finance, consumer behavior, and public policy.
Loss Aversion
Loss Aversion is a behavioral bias identified in prospect theory where individuals exhibit a stronger preference for avoiding losses than acquiring equivalent gains. It suggests that people are more sensitive to losses than gains of equal magnitude, leading to risk aversion in the domain of gains and risk-seeking behavior in the domain of losses. Loss aversion reflects the asymmetry of value perceptions between gains and losses, with losses perceived as more psychologically impactful than equivalent gains. Understanding loss aversion provides insights into risk attitudes, decision biases, and the framing effects observed in decision-making under uncertainty.
When discussing risk attitudes and decision biases, particularly in understanding how individuals weigh potential gains and losses in decision-making under uncertainty, and in exploring the implications of loss aversion for risk-taking behavior, investment decisions, and consumer choices in various domains such as finance, insurance, and marketing.
Endowment Effect
Endowment Effect is a cognitive bias where individuals assign higher value to objects they own or possess than identical objects they do not own. It leads to a preference for retaining one’s possessions and resisting trades or exchanges, even when the objective value of the items is the same. The endowment effect is attributed to psychological ownership, attachment, and loss aversion, with people valuing possessions more highly due to their personal connection and perceived ownership rights. Understanding the endowment effect provides insights into consumer behavior, pricing strategies, and the psychology of ownership.
When discussing consumer behavior and decision biases, particularly in understanding how ownership influences perceived value and preferences, and in exploring the implications of the endowment effect for pricing strategies, negotiation outcomes, and decision-making in domains such as retail, auctions, and behavioral economics.
Reference Point
Reference Point is a central concept in prospect theory representing the baseline or starting point against which gains and losses are evaluated. It serves as a reference standard for comparing outcomes and determining the direction and magnitude of value changes. Reference points can be subjective and context-dependent, varying across individuals, situations, and decision contexts. In prospect theory, individuals evaluate outcomes relative to a reference point, experiencing gains and losses from that point based on their perceived deviations from the reference standard. Understanding reference points provides insights into risk perception, decision framing, and choice behavior under uncertainty.
When discussing decision-making under uncertainty and risk perception, particularly in understanding how individuals evaluate outcomes relative to a baseline or reference standard, and in exploring the effects of reference points on risk attitudes, framing effects, and decision preferences in various domains such as finance, insurance, and marketing.
Risk Preferences
Risk Preferences refer to individuals’ attitudes and tendencies toward taking risks or avoiding uncertainty in decision-making situations. They reflect individual differences in risk tolerance, aversion, and seeking behavior, influencing the choices people make in uncertain environments. Risk preferences can vary across individuals and contexts, shaped by factors such as personality traits, past experiences, and situational factors. Understanding risk preferences provides insights into decision-making under uncertainty and the factors influencing risk attitudes and behaviors in different domains.
When discussing decision-making under uncertainty and risk assessment, particularly in understanding individual differences in risk tolerance, aversion, and seeking behavior, and in exploring the implications of risk preferences for investment decisions, insurance choices, and policy preferences in various domains such as finance, healthcare, and environmental conservation.
Certainty Effect
Certainty Effect is a cognitive bias observed in prospect theory where individuals overweight outcomes with certainty or high probability relative to uncertain outcomes of equivalent expected value. It suggests that people prefer certain outcomes to probabilistic outcomes of equal expected value, leading to risk aversion in the domain of uncertainty. The certainty effect reflects the psychological impact of certainty on decision preferences, with individuals valuing certainty and stability over uncertainty and variability. Understanding the certainty effect provides insights into risk perception and decision-making under uncertainty.
When discussing decision-making under uncertainty and risk perception, particularly in understanding how individuals weigh certain and uncertain outcomes in decision preferences, and in exploring the implications of the certainty effect for risk attitudes, insurance choices, and investment decisions in various domains such as finance, healthcare, and environmental management.
Prospect Theory Applications
Prospect Theory Applications refer to the practical implications and real-world applications of prospect theory in diverse domains such as economics, finance, marketing, and public policy. Prospect theory provides a descriptive model of decision-making under risk and uncertainty, capturing behavioral biases and deviations from rational choice theory observed in empirical studies. Its applications include understanding consumer behavior, designing incentive systems, pricing financial assets, and shaping policy interventions to account for psychological factors influencing decision behavior. Understanding prospect theory applications informs decision-making strategies and interventions aimed at improving outcomes in different domains.
When discussing decision-making models and practical interventions, particularly in understanding how prospect theory principles apply to real-world decision contexts and influence behavior and outcomes, and in exploring the implications of prospect theory for designing effective policies, incentives, and communication strategies in areas such as healthcare, finance, marketing, and environmental conservation.
Framing Effect
Framing Effect is a cognitive bias where people’s decisions are influenced by how information is presented or framed, rather than the actual content of the information. It occurs when individuals react differently to the same choice depending on whether it is presented as a potential gain or a potential loss, or framed positively or negatively. Framing effects can lead to shifts in preferences, risk perceptions, and decision outcomes, even when the underlying information remains unchanged. Understanding framing effects provides insights into the role of context and presentation format in shaping decision preferences and behavior.
When discussing decision-making biases and communication strategies, particularly in understanding how the presentation of information influences decision preferences and behavior, and in exploring the effects of framing effects on risk perceptions, choice behavior, and decision outcomes in different domains such as health communication, marketing, and public policy messaging.
Sunk Cost Fallacy
Sunk Cost Fallacy is a cognitive bias where individuals continue to invest resources (such as time, money, or effort) into a project or decision despite knowing that the costs outweigh the benefits. It occurs when people consider unrecoverable costs (sunk costs) in their decision-making, leading to irrational behavior and persistence in unprofitable endeavors. Sunk cost fallacy reflects the tendency to justify past investments and avoid admitting failure or loss, rather than making decisions based on future prospects and expected outcomes. Understanding sunk cost fallacy provides insights into decision biases and the rational allocation of resources.
When discussing decision-making biases and resource allocation, particularly in understanding how past investments influence current decisions, and in exploring the implications of sunk cost fallacy for project management, investment strategies, and organizational decision-making in various domains such as business, finance, and personal decision-making.
Behavioral Economics
Behavioral Economics is an interdisciplinary field that combines insights from psychology and economics to study human decision-making and behavior in real-world contexts. It investigates how cognitive biases, heuristics, and social influences affect economic choices and market outcomes, challenging traditional economic assumptions of rationality and self-interest. Behavioral economics applies experimental methods and psychological principles to understand deviations from rational choice theory and develop interventions to improve decision-making in areas such as savings, health, and environmental conservation.
When discussing decision-making models and economic behavior, particularly in understanding how psychological factors influence economic choices and market outcomes, and in exploring the applications of behavioral economics in policy-making, marketing, finance, and other domains to address decision biases and improve individual and societal welfare.
Convergent thinking occurs when the solution to a problem can be found by applying established rules and logical reasoning. Whereas divergent thinking is an unstructured problem-solving method where participants are encouraged to develop many innovative ideas or solutions to a given problem. Where convergent thinking might work for larger, mature organizations where divergent thinking is more suited for startups and innovative companies.
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman in 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.
Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and eventuality. It also discourages the tendency for individuals to default to the most obvious choice.
Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.
Bounded rationality is a concept attributed to Herbert Simon, an economist and political scientist interested in decision-making and how we make decisions in the real world. In fact, he believed that rather than optimizing (which was the mainstream view in the past decades) humans follow what he called satisficing.
The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.
Occam’s Razor states that one should not increase (beyond reason) the number of entities required to explain anything. All things being equal, the simplest solution is often the best one. The principle is attributed to 14th-century English theologian William of Ockham.
The Lindy Effect is a theory about the ageing of non-perishable things, like technology or ideas. Popularized by author Nicholas Nassim Taleb, the Lindy Effect states that non-perishable things like technology age – linearly – in reverse. Therefore, the older an idea or a technology, the same will be its life expectancy.
Antifragility was first coined as a term by author, and options trader Nassim Nicholas Taleb. Antifragility is a characteristic of systems that thrive as a result of stressors, volatility, and randomness. Therefore, Antifragile is the opposite of fragile. Where a fragile thing breaks up to volatility; a robust thing resists volatility. An antifragile thing gets stronger from volatility (provided the level of stressors and randomness doesn’t pass a certain threshold).
Systems thinking is a holistic means of investigating the factors and interactions that could contribute to a potential outcome. It is about thinking non-linearly, and understanding the second-order consequences of actions and input into the system.
Vertical thinking, on the other hand, is a problem-solving approach that favors a selective, analytical, structured, and sequential mindset. The focus of vertical thinking is to arrive at a reasoned, defined solution.
Maslow’s Hammer, otherwise known as the law of the instrument or the Einstellung effect, is a cognitive bias causing an over-reliance on a familiar tool. This can be expressed as the tendency to overuse a known tool (perhaps a hammer) to solve issues that might require a different tool. This problem is persistent in the business world where perhaps known tools or frameworks might be used in the wrong context (like business plans used as planning tools instead of only investors’ pitches).
The Peter Principle was first described by Canadian sociologist Lawrence J. Peter in his 1969 book The Peter Principle. The Peter Principle states that people are continually promoted within an organization until they reach their level of incompetence.
The straw man fallacy describes an argument that misrepresents an opponent’s stance to make rebuttal more convenient. The straw man fallacy is a type of informal logical fallacy, defined as a flaw in the structure of an argument that renders it invalid.
The Streisand Effect is a paradoxical phenomenon where the act of suppressing information to reduce visibility causes it to become more visible. In 2003, Streisand attempted to suppress aerial photographs of her Californian home by suing photographer Kenneth Adelman for an invasion of privacy. Adelman, who Streisand assumed was paparazzi, was instead taking photographs to document and study coastal erosion. In her quest for more privacy, Streisand’s efforts had the opposite effect.
As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.
The recognition heuristic is a psychological model of judgment and decision making. It is part of a suite of simple and economical heuristics proposed by psychologists Daniel Goldstein and Gerd Gigerenzer. The recognition heuristic argues that inferences are made about an object based on whether it is recognized or not.
The representativeness heuristic was first described by psychologists Daniel Kahneman and Amos Tversky. The representativeness heuristic judges the probability of an event according to the degree to which that event resembles a broader class. When queried, most will choose the first option because the description of John matches the stereotype we may hold for an archaeologist.
The take-the-best heuristic is a decision-making shortcut that helps an individual choose between several alternatives. The take-the-best (TTB) heuristic decides between two or more alternatives based on a single good attribute, otherwise known as a cue. In the process, less desirable attributes are ignored.
The bundling bias is a cognitive bias in e-commerce where a consumer tends not to use all of the products bought as a group, or bundle. Bundling occurs when individual products or services are sold together as a bundle. Common examples are tickets and experiences. The bundling bias dictates that consumers are less likely to use each item in the bundle. This means that the value of the bundle and indeed the value of each item in the bundle is decreased.
The Barnum Effect is a cognitive bias where individuals believe that generic information – which applies to most people – is specifically tailored for themselves.
First-principles thinking – sometimes called reasoning from first principles – is used to reverse-engineer complex problems and encourage creativity. It involves breaking down problems into basic elements and reassembling them from the ground up. Elon Musk is among the strongest proponents of this way of thinking.
The ladder of inference is a conscious or subconscious thinking process where an individual moves from a fact to a decision or action. The ladder of inference was created by academic Chris Argyris to illustrate how people form and then use mental models to make decisions.
Goodhart’s Law is named after British monetary policy theorist and economist Charles Goodhart. Speaking at a conference in Sydney in 1975, Goodhart said that “any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.” Goodhart’s Law states that when a measure becomes a target, it ceases to be a good measure.
The Six Thinking Hats model was created by psychologist Edward de Bono in 1986, who noted that personality type was a key driver of how people approached problem-solving. For example, optimists view situations differently from pessimists. Analytical individuals may generate ideas that a more emotional person would not, and vice versa.
The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.
The bandwagon effect tells us that the more a belief or idea has been adopted by more people within a group, the more the individual adoption of that idea might increase within the same group. This is the psychological effect that leads to herd mentality. What in marketing can be associated with social proof.
Moore’s law states that the number of transistors on a microchip doubles approximately every two years. This observation was made by Intel co-founder Gordon Moore in 1965 and it become a guiding principle for the semiconductor industry and has had far-reaching implications for technology as a whole.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
Value migration was first described by author Adrian Slywotzky in his 1996 book Value Migration – How to Think Several Moves Ahead of the Competition. Value migration is the transferal of value-creating forces from outdated business models to something better able to satisfy consumer demands.
The bye-now effect describes the tendency for consumers to think of the word “buy” when they read the word “bye”. In a study that tracked diners at a name-your-own-price restaurant, each diner was asked to read one of two phrases before ordering their meal. The first phrase, “so long”, resulted in diners paying an average of $32 per meal. But when diners recited the phrase “bye bye” before ordering, the average price per meal rose to $45.
Groupthink occurs when well-intentioned individuals make non-optimal or irrational decisions based on a belief that dissent is impossible or on a motivation to conform. Groupthink occurs when members of a group reach a consensus without critical reasoning or evaluation of the alternatives and their consequences.
A stereotype is a fixed and over-generalized belief about a particular group or class of people. These beliefs are based on the false assumption that certain characteristics are common to every individual residing in that group. Many stereotypes have a long and sometimes controversial history and are a direct consequence of various political, social, or economic events. Stereotyping is the process of making assumptions about a person or group of people based on various attributes, including gender, race, religion, or physical traits.
Murphy’s Law states that if anything can go wrong, it will go wrong. Murphy’s Law was named after aerospace engineer Edward A. Murphy. During his time working at Edwards Air Force Base in 1949, Murphy cursed a technician who had improperly wired an electrical component and said, “If there is any way to do it wrong, he’ll find it.”
The law of unintended consequences was first mentioned by British philosopher John Locke when writing to parliament about the unintended effects of interest rate rises. However, it was popularized in 1936 by American sociologist Robert K. Merton who looked at unexpected, unanticipated, and unintended consequences and their impact on society.
Fundamental attribution error is a bias people display when judging the behavior of others. The tendency is to over-emphasize personal characteristics and under-emphasize environmental and situational factors.
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.
Hindsight bias is the tendency for people to perceive past events as more predictable than they actually were. The result of a presidential election, for example, seems more obvious when the winner is announced. The same can also be said for the avid sports fan who predicted the correct outcome of a match regardless of whether their team won or lost. Hindsight bias, therefore, is the tendency for an individual to convince themselves that they accurately predicted an event before it happened.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
