Outcome Bias


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.  

BREAKING DOWN '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. 

  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. Behavioral Finance

    A field of finance that proposes psychology-based theories to ...
  6. Dedicated Short Bias

    A hedge fund strategy that maintains a net short exposure to ...
Related Articles
  1. Entrepreneurship

    Women And Finances: Is There A Gender Bias?

    Uncover some very complex reasons for female gender biases in the finance world.
  2. Active Trading Fundamentals

    Understanding Investor Behavior

    Discover how some strange human tendencies can play out in the market, posing the question: are we really rational?
  3. Budgeting

    Financial Risks That Don't Pay Off: The Cost Of Reckless Financial Behavior

    Despite the recessions, citizens continue to take financial risks and spend outside of their means without fully appreciating the potential consequences for both themselves and the wider economy.
  4. Investing Basics

    Behavioral Bias - Cognitive Vs. Emotional Bias In Investing

    We all have biases. The key to better investing is to identify those biases and create rules to minimize their effect.
  5. Investing Basics

    4 Behavioral Biases And How To Avoid Them

    Here are four common common behavioral biases for traders and how to minimize their effects on your portoflio.
  6. Active Trading Fundamentals

    4 Biases That Can Make You A Bad Investor

    Find out how to spot these four biases, and start making more logical investing decisions.
  7. Mutual Funds & ETFs

    Is Biased Investing Holding You Back?

    Risk aversion seems to come to us naturally, preventing us from stepping into unfamiliar territory. But feeling comfortable isn't always the best thing for your portfolio.
  8. Active Trading Fundamentals

    Behavioral Finance

    Learn the science behind irrational decision making and how you can avoid it.
  9. Investing Basics

    What Does In Specie Mean?

    In specie describes the distribution of an asset in its physical form instead of cash.
  10. Economics

    Calculating Cross Elasticity of Demand

    Cross elasticity of demand measures the quantity demanded of one good in response to a change in price of another.
  1. How do mutual funds split?

    Mutual funds split in the same way that individual stocks split, but less often. Like a stock split, mutual fund splits do ... Read Full Answer >>
  2. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  3. How can I use a regression to see the correlation between prices and interest rates?

    In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >>
  4. How do I calculate a modified duration using Matlab?

    The modified duration gauges the sensitivity of the fixed income securities to changes in interest rates. To calculate the ... Read Full Answer >>
  5. How do I calculate the rule of 72 using Matlab?

    In finance, the rule of 72 is a useful shortcut to assess how long it takes an investment to double given its annual growth ... Read Full Answer >>
  6. How do I calculate the standard error using Matlab?

    In statistics, the standard error is the standard deviation of the sampling statistical measure, usually the sample mean. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!