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#17 - ⚖ If all else equals, 🕶 Hindsight Bias

#17 - ⚖ If all else equals, 🕶 Hindsight Bias
By Hari • Issue #17 • View online
Hi Friends,
“If all else equals” is a piece I wrote about a though process that I have found myself doing.
A common shortcut our brain takes during comparing two options is to, at least for the moment assume everything else is the same between the 2 options. Hoping to get a more objective judgement of the situation.
Occam’s razor, if all else is equal, the simpler explanation is preferred over a complex one. However, it is rare in the real world to have to decide between 2 options where they only differ in one dimension.
This mental model can backfire if not used with care in the real world. It is important to understand what are the other parameters that is assumed to be constant. Whether it is possible in the real world where a scenario would exist with similar options in all dimensions but one. The bottom line is that the comparison should be made between 2 possibilities that have a chance of existing in the world. It doesn’t help if the comparison is done between 2 hypothetical situation and using that judgement to choose a real world option.
Figuring out which parameters of the system affect it directly and indirectly is a good exercise to perform. Comparing indirect parameters is a recipe for a disaster. And by direct parameters, I mean parameters that are fundamental to the characteristics of the system. Fundamental, also read as, first order implications instead of derived aspects. For a business, it could be profit after tax, for a business loan it could be interest and time period.
That said, sensitivity analysis uses this principle and is a good method to get a better understanding as to how different variables affect the outcome and behaviours of the system under question.
If you would like to read more about Hindsight Bias, click here.

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