Outcome Bias

AAA

DEFINITION of 'Outcome Bias'

A decision based on the outcome of previous events without regard to how the past events developed. Outcome bias does not involve analysis of the factors that lead to a previous event, and instead de-emphasizes the events preceding the outcomes and overemphasizes the outcome. Unlike hindsight bias, outcome bias does not involve the distortion of past events.  

INVESTOPEDIA EXPLAINS 'Outcome Bias'

Outcome bias can be more dangerous than hindsight bias in that it only looks at outcomes. For example, an investor decides to invest in real estate after learning a colleague made a large return on investment in real estate when interest rates were at a different level. Rather than look at other factors that could have resulted in the colleague’s success, such as the health of the overall economy or performance of real estate, the investor is focusing on the money made by the colleague.

Gamblers also fall prey to outcome bias. While statistically casinos come out on top, many gamblers use anecdotal "evidence" from friends and acquaintances to justify their continued playing. This outcome bias, that continuing to play could result in winning a large amount of money, prevents the gambler from leaving the casino. 

RELATED TERMS
  1. Unbiased Predictor

    The notion that the current market price of a physical commodity ...
  2. Home Country Bias

    Investors' natural tendency to be most attracted to investments ...
  3. Bias

    Biases are human tendencies that lead us to follow a particular ...
  4. Reverse Survivorship Bias

    The tendency for low performers to remain in the game, while ...
  5. Survivorship Bias

    The tendency for mutual funds with poor performance to be dropped ...
  6. Behavioral Economics

    The study of psychology as it relates to the economic decision ...
Related Articles
  1. Women And Finances: Is There A Gender ...
    Entrepreneurship

    Women And Finances: Is There A Gender ...

  2. Understanding Investor Behavior
    Active Trading Fundamentals

    Understanding Investor Behavior

  3. Financial Risks That Don't Pay Off: ...
    Budgeting

    Financial Risks That Don't Pay Off: ...

  4. Behavioral Bias - Cognitive Vs. Emotional ...
    Investing Basics

    Behavioral Bias - Cognitive Vs. Emotional ...

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center