| Summary: | Retrospective sense-making produces a perception of a world more orderly than it is. In retrospect we recall the actual outcome of a situation as more predictable than it really seemed in prospect. Thus, we see outcomes as unsurprising, as relatively predictable before hand. A key question, and the one which is the central focus of this paper, is, what effect does this inflated perception of order have on strategic management? Three studies presented here suggest that: (1) Knowing eventual outcomes often distorts later reevaluations of initial decisions. Advanced strategy students analyzing a complex business case were unable to ignore information concerning the outcome of decisions made in the case and systematically distorted their evaluations of initial decisions and projections for the future. (2) Access to environmental history and comparative feedback may impede performance by leading decision makers to expect the future to be more predictable than it is. These factors led to persistent poor performance in a dynamic resource allocation task. (3) Remedial efforts aimed at correcting the bias should focus on cognitive factors to a greater degree than motivational factors. Large and equal hindsight shifts were produced in two groups of students by presenting outcomes as either "real" or as the result of a coin flip, which appears to weaken a self-flattery explanation of hindsight shift and give support to a cognitive account. Research and practical implications are suggested.
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