Outcome bias is a psychological phenomenon that influences our judgement and decision making. It refers to how we retrospectively evaluate the quality of a decision based on the outcome that resulted from it, rather than on the quality of the decision-making process itself.

This phenomenon often occurs when we look at successes or failures retrospectively. If a decision leads to a positive outcome, we tend to judge it as wise and reasonable, even if the decision-making process was flawed. On the other hand, we tend to view a decision as bad or unwise if it leads to a negative outcome, even if the decision-making process was rational.

It is important to understand that the quality of a decision should not be judged solely on the basis of the outcome. A good decision can lead to a bad outcome if unforeseeable factors come into play, while a bad decision can occasionally be lucky and lead to a positive outcome.

Outcome bias can lead to distorted thinking and inappropriate conclusions. To avoid it, it is advisable to evaluate decisions on the basis of available knowledge and the best available information, regardless of their outcome. This requires an objective analysis of the decision-making process and a willingness to learn from mistakes, even if they have led to a positive outcome.

Outcome bias is of great importance in business, especially in the investment sector. Investors should be aware that the performance of an investment does not necessarily reflect the quality of the investment decision. A positive outcome may be due to luck or temporary market conditions, while a negative outcome may result from rational decisions.

To summarise, outcome bias is a human tendency to evaluate decisions based on their outcomes rather than on the quality of the decision-making process. To make smart and rational decisions, it is important to recognise this bias and focus on the process and the knowledge available, regardless of the outcome. This helps to make better and more informed decisions in all areas of life.