Behavioral Finance: Difference between Representative Bias and HindSight bias

Hindsight Bias – this is a cognitive bias belief perseverance whereas Availability bias is a cognitive bias based on information processing.

In availability bias, you decide based on whatever that comes to mind first or whatever you manage to first obtain. I would say this is somehow similar to framing bias in a way or too (sorry didn’t mean to confuse you further lol).

Basically, you based your data on a narrowed range of reference.

As for hindsight bias it’s to do with how you believe that your initial decision was ‘correct’, even though they were not.

@RaviVooda‌

Representative Bias is when we arrive at a conclusion based on the facts that suggest (represent) it without delving deeper into it. For ex : You invested in a company because you feel its a good company with an ethical outlook. However, the fact that the company’s image is good does not represent the fundamental soundness of the firm.

Hindsight Bias is when we falsely overestimate the positive influence of our past decisions on the investment return. We might have made a few wrong estimates, but those factors didn’t affect the investment returns. In Hindsight, though, we believe that we made all the right moves.

@RaviVooda I also find representativeness a bit confusing. Some good comments above, and I think it’s also worth remembering that (from my understanding) representativeness is about classifying new information with simple heuristics, while hindsight bias is to do with faulty processing of past results/information.

Representative bias – overly simplified decision rules without doing further thorough analysis. For example, a quarter year earnings fell, you assume it’s not doing well without analysing further.

Hindsight bias – it’s something like self attribution in a way you would only remember your right decision but not your bad ones.