Just one year ago, a single Bitcoin was worth $64,000.
Today it’s worth ≈ $19,000.
A close friend of yours got caught up in the Bitcoin craze and invested most of their savings before the crash.
They urged you to invest too and you were definitely tempted. You spent weeks researching Bitcoin. You read critiques from investment experts and hung out in pro Bitcoin communities on Reddit.
Advice on the topic was polarizing to say the least…
Some Bitcoin fanatics argued that the price would only go up.
They chanted, “To the mooooooooooon 🚀” and many seemed to be getting very rich very fast.
Meanwhile, Bitcoin critics said that a crash was inevitable. They argued that the Bitcoin bubble would burst—it was only a matter of time.
As much as you wanted to invest, ultimately loss aversion got the best of you and you decided against it.
A year later, Bitcoin crashed.
In hindsight, how do you feel about your decision?
In today’s edition of Why We Buy, we’re taking a look at Hindsight Bias – why we confidently think we knew what was going to happen all along.
Let’s get into it…
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The Psychology of Hindsight Bias 🧠
Have you ever thought: “I knew it all along”?
If you have, then you’ve been influenced by Hindsight Bias.
Hindsight Bias is a common tendency for you to perceive past events as being more predictable than they actually were.
Obviously, Bitcoin was going to hit an all-time high.
Obviously, Bitcoin was going to come crashing down.
People are using their hindsight bias to figure out the future of Bitcoin.
The far differing opinions show just how fragile our predictions for the future are.
For example, it’s easy to look back and say that it was inevitable that Amazon was going to be as big as it currently is.
But if you were a shareholder from 1997 to 2007, you were probably considering selling off your shares in the unprofitable, cash-burning startup.
Hindsight bias is a type of memory distortion: new information received after the fact influences how you remember the actual event.
This kind of memory distortion can lead to false memories, modified memories, or even overconfidence in your ability to predict the outcomes of future events.
Inside Your Buyer’s Mind🧐
Researchers have found that individuals—including your buyers—selectively recall information that reinforces what they already know to be true.
They do this to create a narrative that makes sense from the limited information they have access to.
If the narrative is easy to generate, they interpret that to mean the outcome was foreseeable.
- That product was overhyped, so of course the bubble burst eventually
- That restaurant was in a bad location, so it makes sense they went out of business
- That company hired too fast, so of course they’re doing mass layoffs
In reality, each observation only makes up a tiny part of the bigger picture.
But because buyers want the outcome to align with their mental model of how the world works, they simplify the story to make it seem like it was obvious the whole time.
How To Apply This 🤑
Alright, so how can we apply this right now to sell more?
Answer buyer objections upfront
Before customers click that big ol’ buy button, they must believe that success is possible.
Many people try a variety of solutions to solve a problem without finding success. If they’ve tried something and failed before, their Hindsight Bias may lead them to assume failure is inevitable and they’ll be reluctant to invest again.
Jones Road is a make-up brand that has earned a lot of hype lately (they’re also a Northbeam customer). They know that many make-up users drop a lot of money on products that they never end up using in search for the right make-up for them.
Jones Road speaks to their prospective customer’s fear of buying another product they won’t use by saying, “You don’t need more beauty products, you need better beauty products” and urges them to complete their shade matching quiz.
Answering objections upfront shows buyers that you “get them” and builds trust.
Analyze your wins and your losses
Lots of smart businesses understand the value of conducting customer interviews. Interviewing recent buyers gives you clarity about what works with customers (eg. messaging, marketing channels, promotions, etc.) and where to double-down.
But you shouldn’t just talk to the customers you win. Talk to lost customers too so you can understand what went wrong.
You can interview customers who stopped buying to learn why they left or learn from customers that made it all the way through your sales process and decided not to buy. Investing in learning what’s working and what’s not is the best way to improve your win rate.
As Neville Mehora shares in his funny tweet, a dog groomer learned that one of the reasons they were losing customers was because those customers thought their prices were too high.
Customers didn’t understand why they’d pay more for a doggy haircut than they did on their own hair. That insight led them to create a very effective sign justifying their prices.
(If you don’t have buyers to talk to, try analyzing your competitors’ online customer reviews. You’ll learn lots by seeing what customers love and hate about their products and services.)
Recognize your own Hindsight Bias
When making decisions, recognize that previous experiences are influencing your current reality. Strategies of the past might not work anymore. Be alright with being wrong.
As I recently tweeted…
The Short of It 💥
Customers and decision-makers will always look at outcomes and try to fit them into their existing worldviews.
By setting expectations early and often, you can reduce the amount of bias in the decisions you and your customers make.
Until next time, happy selling!
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