This is all about Cognitive Psychology. Human beings will say, ‘I knew-it-all-along’, because of hindsight effect or creeping determinism after an event has happened. People will always be inclined to an event that has already happened as being more predictable than it was before the event took place.
A good example is when we are preparing for exams. When you are studying, you may be tempted to believe you are an expert in a subject. When the example comes the next day examining exactly what you have been studying, you find you can’t get everything correct because of hindsight effect. When one is studying, it’s always good to try and test the effect hindsight has on what is being studied.
You must have heard it from a student who has just done an examination. When asked how the exam was, he will say 50/50. And when the results come and the results show he has passed, he will say “I-knew-it-all-along that I was to pass that exam”.
The effect of hindsight is mostly experienced in trading the stock market. You may look at the past performance of a stock by comparing prices and moving average. The past performance will show it’s very easy to trade the stock by just comparing prices with the moving averages. But when you try to trade the same in real time, you will find it’s very difficult to make a profit.
Hindsight bias is therefore the tendency of humans to change an opinion from an original thought to something different after new information has been provided. Hindsight bias is a weakness but the beauty of it is that it helps us make decisions fast, albeit not necessarily the correct decisions.