- Hindsight bias psychology example full#
- Hindsight bias psychology example professional#
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Hindsight bias psychology example professional#
Additionally, from a professional point of view, reputations are at risk, and liability for all creditor claims on the bankrupt estate in some cases far exceed insurance coverage and can, therefore, lead to dire financial circumstances in the private sphere.
Accurate and unbiased assessments are important for general reasons such as predictability of the relevant legislation (i.e., legal certainty) and resultant trust in legal systems, but also because being held liable for a company's downfall can have detrimental effects on a director's personal well-being (Jenkins et al., 2014 Kesteren et al., 2017 Ucbasaran et al., 2013). It is imperative that these legal professionals assess a directors’ actions in relation to an adverse event in an objective and reliable manner. Investigations into a director's conduct are normally carried out by professionals who have a legal or financial background (or both), such as lawyers, trustees, insolvency practitioners, liquidators, or forensic accountants, possibly in conjunction with an investigating judge/magistrate (in inquisitorial systems). If such wrongful conduct is, indeed, proven, directors can be held liable for damages, and creditors thus (partly) reclaim their losses. 1 1 There are several differences across jurisdictions regarding the degrees of freedom that directors typically get (for a comparison of the legislation across jurisdictions, see INSOL International, 2017), but a universality across legal systems is that for a director to be held liable, negligence and a causal link with the damages needs to be established. In such investigations, attention often centers on the role of the company's directors to for example determine whether there has been a breach of fiduciary duties, wrongful trading, or gross business misjudgments. In some jurisdictions, an investigation into the causes of a company's failure is even mandatory. Also in less high-profile cases of business failure do the local communities or creditors typically appeal for a thorough investigation into the causes of the event.
After the Enron bankruptcy in 2001, the collapse of Lehman Brothers in 2008, and more recently the Volkswagen emissions scandal, the public (as well as the authorities) demanded thorough investigations and that those to blame were held accountable. In this regard, corporate “disasters” are not much different. In such cases, people want to know what caused the event and whether there is someone to blame and to be held legally liable for the consequences. Think for example of the sinking of the MS Estonia cruise ferry in 1994, the Deepwater Horizon oil spill in the Gulf of Mexico in 2010, or the Ponte Marandi bridge collapse in Genoa (Italy) in 2018, just to name a few. This contribution is particularly timely considering the many companies that are currently going bankrupt or are facing bankruptcy amidst the COVID-19 pandemic.Īfter a disastrous event, public outcry often follows over who is to blame.
Hindsight bias psychology example free#
In two studies (total N = 1,729), we demonstrate that legal professionals tend to judge a director's actions more negatively and perceive bankruptcy as more foreseeable in hindsight than in foresight and that these effects are significantly stronger for those who endorse the notion that humans have free will. Additionally, to advance our understanding of the mechanisms underlying these biases, we also examine whether free will beliefs can predict susceptibility to hindsight bias and outcome bias in this context. The present study investigates whether professional legal investigators such as judges and lawyers are affected by hindsight bias and outcome bias when evaluating directors’ conduct in a bankruptcy case.
Hindsight bias psychology example full#
The accurate assessment of directors’ liability can be jeopardized by having to judge in hindsight with full knowledge of the adverse outcome.
Following a corporate disaster such as bankruptcy, people in general and damaged parties, in particular, want to know what happened and whether the company's directors are to blame.
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