Outcome bias

What criteria should be used to evaluate decisions? This is probably one of the most consequential and counterintuitive points raised by Daniel Kahneman in his excellent Thinking, Fast and Slow. We are basically faced with a choice of judging decisions based on the outcomes they produce, or alternatively, we can evaluate the process that leads to a decision in the first place.
 
For a decision to be appropriately evaluated, the focus has to be on the process. Did I collect enough information before making a decision? Did the decision-making process guard against my biases? By paying attention to these and related questions, we can be more confident that the choices we made were correct, even if they do not work out.
 
On the other hand, judging decisions based on their outcomes is highly problematic because it makes us prone to hindsight bias – after the fact, we are lead to believe that the decision had easily predictable consequences, when in fact the opposite of that is true – and even more fundamentally such emphasis produces erroneous assessments. Consider the following example. Two friends go out drinking, and they are too drunk to drive back home. Tom decides to take a taxi, while Rob chooses to drive his own car. Rob is lucky and ends up safely in his bed, while Tom’s cab has an accident. Was Rob right in driving drunk? Of course not – unless we focus on the outcome of this story. 
 
This problem of how we evaluate decisions making process has a profound consequence on our society. Most fundamentally, the problem is that we very often reward luck as if it was skill (Rob), and undervalue real abilities when they do not produce tangible rewards (Tom). Kahneman gives an example of an irresponsible army general who takes unprecedented risks and gets rewarded for it. Such general is described as having a flare, even though he puts many of his soldiers at great risk. A more conservative general who is not willing to gamble with the life of his soldiers is not held in high esteem. He is being punished for being careful, when in fact he might be making the right call.

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