What is the difference between hindsight bias and confirmation bias?

Question

I'm trying to understand better the influence of psychological biases on the financial market decision-making process.

Wikipedia describes hindsight as follow:

Refers to the common tendency for people to perceive events that have already occurred as having been more predictable than they actually were before the events took place. As a result, people often believe, after an event has occurred, that they would have predicted, or perhaps even would have known with a high degree of certainty, what the outcome of the event would have been before the event occurred.

While the definition of confirmation bias according to the same source is relatively similar:

Confirmation bias is the tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses.

I think that those biases differ from the results' reflection perspective. However, I'm a bit confused about the proper interpretation.

Thanks in advance.

Answer 1

Hindsight Bias (Also known as the "knew-it-all-along phenomenon"), is the tendency when an individual assumes that he/she knew and predicted an outcome after the outcome has been determined (Hoffrage & Pohl, 2003). Due to that, it makes the individual believe that he/she could have predicted that outcome with statements such as: "I knew it all along" or "I knew it would happen" (Hoffrage & Pohl, 2003).

Hindsight bias functions in a way that after learning the outcome, it gives the individual a sense of predictability, a higher degree of certainty of the outcome without any prior knowledge. Having hindsight bias could potentially lead to people being overconfident on their ability.

As an example, consider a student who is answering a test question and is uncertain whether he should answer A or B. The student eventually answer B. When the teacher mentioned the actual answer is B. The student's first thing that came into his mind after the answer is mentioned: "I knew the answer is B all along". Making him feel confident about it despite the fact that he was uncertain about the answer during the initial stage on doing the test.

Confirmation Bias is the tendency for the individual to find and gather information that is more inclined and supports his/her beliefs (Nickerson, 1998). At the same time, ignoring the other possible alternatives of the information; making it biased.

Example, if a person strongly believes that playing games is harmful for children, he/she would find information/studies that supports the connotation that playing games is harmful. Without acknowledge or accept the fact there are also information/studies shown that it is beneficial for children to play games.

References:

Hoffrage, U., & Pohl, R. (2003). Research on hindsight bias: A rich past, a productive present, and a challenging future. Memory, 11(4-5), 329–335. doi:10.1080/09658210344000080

Nickerson, R. S. (1998). Confirmation bias: A ubiquitous phenomenon in many guises. Review of General Psychology, 2(2), 175–220. doi:10.1037/1089-2680.2.2.175

Answer 2

Those sources seem like they have the correct descriptions and they are definitely different, I'm not too sure how to say more than them but I'll try to rephrase.

For hindsight bias, you are looking at a current result of something that happened, and looking further backward and saying "oh that was predictable" or "oh I would have guessed that".

Confirmation bias means that, for something you think is true today, you will more strongly recognize further evidence in favor of your opinion versus evidence against it in the future.