Hindsight bias occurs when you look back in time and see an unpredictable event as predictable or, at least, more predictable than it was at the point it in time when the decision was made.
This is often referred to the annoying "I knew it all along" or the "I told you so" tendency.
Hindsight bias can be a damaging self-delusion, it can cause you to:
The hindsight bias can occur as a result of a memory distortion or "misremembering" of a prior judgement call.
This self-deception occurs when fresh current information overlays a past event or experience and allows/causes you to reinterpret the original assessment into something that fits the current information.
Your beliefs an also have a distorting effect, for example, in the light of current information you delude yourself into seeing the past event as inevitable and/or foreseeable.
According to psychologists Roese and Vohs, three variables are potentially at work in these distortions :
You selectively remember information that confirms what you already think you know to be true to create a story that makes sense to you - see confirmation bias.
When you are thinking about your thinking of a past event and reviewing those thought processes in the light of current information, you can easily fall prey to the availability heuristic and selectively remember those elements of your prior knowledge that you can most easily recall.
You would like to believe that the world is safe, orderly and predictable rather than the unpredictable and seemingly random and meaningless way life unfolds, you would also like to boost your self esteem, and for these and other related reasons we unconsciously reorder our memories and cognitive processing to arrive at the comforting "I knew it all aong conclusion.
Rudiger Pohl in Cognitive Illusions offers an evolutionary explanation of hindsight bias:
 Adaptive Learning
"...hindsight bias is not necessarily a bothersome consequence of a “faulty” information process system, but that is may rather represent an unavoidable by-product of an evolutionary evolved function, namely adaptive learning.
According to this view, hindsight bias is seen as the consequence of our most valuable ability to update previously held knowledge.
This may be seen as a necessary process in order to prevent memory overload and thus to maintain normal cognitive functioning.
Besides, updating allows us to keep our knowledge more coherent and to draw better inferences."
Falling into the self delusion of Hindsight Bias can have serious implications for you:
There are 2 practical ways you can counteract the impact of hindsight bias:
Excellent and comprehensive article from Shane Parrish of Farnam St: Hindsight Bias: Why You’re Not As Smart As You Think You Are
Another comprehensive and easy to read article from The Decision Lab:
Why do we see unpredictable events as predictable after they occur?
Return from "Hindsight Bias" to: Cognitive Distortion