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. Biased Expectations Theory

    A theory that the future value of interest rates is equal to ...
  6. Behavioral Finance

    A field of finance that proposes psychology-based theories to ...
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. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center