A surgeon needs to decide whether or not to perform surgery on a patient. The surgery has a 70% chance of saving the patient's life and a 30% chance of killing the patient. The surgeon decides to perform the surgery, but the patient dies. Did the surgeon make a bad decision?
An investor is given the option of buying $5,000 with of stock. There's a 20% chance that the stock will be worth $50,000 in a year, and an 80% chance that it will be worth nothing. He buys the stock and it loses all its value. Did the investor make a bad decision?
If you said "yes" to either question above then you are a victim of outcome bias: you're judging a decision based on information that wasn't known when the decision was made. Given the information available at the time, both decisions were right. Neither the surgeon nor the investor should feel guilty for his decision, even though they both turned out badly in the end.
Unfortunately most people frequently heap guilt upon themselves for decisions that turn out badly even though they were right at the time they were made. This may explain another cognitive bias: loss aversion.
(HT: HealthBolt, GeekPress, and BBSpot.)
I have to disagree with your second example. Betting the whole 5K on a one in five chance is bad management of my money. The majority goes into a stable, low risk, moderate interest rate investment. Only a small fraction, say $100 goes into the 1000% interest investment with 4 in 5 odds of loss. IF I strike out on the high risk investment, my less risky majority will soak the loss and I'll still make money overall. If I get lucky, then, well, hazzah!
The first example is more clear, but concluding after the fact, that the decision was poor is not outcome bias, it's a failure in reading comprehension. You said the patient was going to die anyway. So a death result is not a down side to the procedure. The only case where this would be an issue is if several live saving treatments were available, and the one with the lowest percentage odds of death result was not chosen.
Obviously you are alluding to nay sayers about the war in Iraq. Given what we knew at the time, is the procedure we are now in the middle of performing, the right choice? Outcome bias might lead some to say, no, we made a poor choice. However, I wonder if maybe when evaluating the outcome, some of us might be confused about who the patient is. The patient is the US, and her interests. The patient is not Iraq and her interests. Is Iraq, through the US occupation, becoming a more stable place where democracy and self determination can flourish? Hmmm...Do we care?
As a good person, and a Christian, of course I care. I want the good peoples of Iraq to thrive and I pray blessings on each and every one of them, friend or foe. But from America's perspective, viewed as an entity, does America care? No, it does not. America cares that its enemies must dedicate substantial effort and attention to Iraq, or lose in that theater. It takes a lot of effort to use love of death, hate and fear to combat candy bars and M-TV. America cares that what oil is being sold from Iraq gets sold on the open market, and not exclusively to Europe, giving them economic advantage. America cares about America, first and foremost.
Individually, Americans are good, generous peoples, who genuinely want the whole world to prosper. In terms of national entities, the concept of altruism is a fallacy. All actions are based in direct or indirect self interest, plain and simple.
DT: You're completely failing to see the forest. I didn't exhaustively lay out each scenario and yes, of course there are lots of other bits of data that could factor into the decisions. I figured that went without saying.
And no, I wasn't alluding to the invasion of Iraq actually, but I suppose that's one valid example.