I'm not much of a gambler, either by skill or frequency. I did make a tidy sum betting on last year's Preakness, though, and because the money had sat in my TVG account ever since, I let a bunch of family members bet $10 each on the Kentucky Derby.

Two people picked the 80-1 long shot Rich Strike, a horse so poorly regarded he was only eligible to race when another horse withdrew the day before: our daughter's boyfriend, because he was playing with house (read: my) money and figured why not shoot for the best return, and my mother-in-law, because she feels three is a powerful number, and two plus one equals three, and the horse's post position was 21. (Which of course begs the question why not just pick the 3 horse, Epicenter?) 

Pretty cool. They both won a lot of money. 

But here's the thing. Right before the race, my wife considered betting $2 on Rich Strike to win. Unlikely return, sure, but hey -- what's $2? Other people in our family say they did as well.

Thousands of other bettors probably did too. Shoot, I did. 

But not really.

Oh, I did look at Rich Strike for a second. I did think, "Hmm, 80-1 odds. Maybe I should throw him into a trifecta; the return would be huge." But I also considered at least 10 other horses I didn't bet on.

I had lots of thoughts about lots of horses, most of them fleeting. And all of them now forgotten.

Except for the fact that I did, for a second, consider Rich Strike.

That I remember.

Which makes it tempting to think I "knew" he was going to win.

Hindsight Bias

That's the power of hindsight bias, in this case the tendency to feel you knew an event was going to happen after it happened.

Looking back, you should have bought Apple stock when because you knew Apple would become a trillion-dollar company. Looking back, you should have bought that house you saw on Zillow because you knew the real estate market was going to explode. Looking back, you should have bought Bitcoin for relative pennies because you knew cryptocurrency would be huge.

Even though you didn't really know -- or you would have done it.

Hindsight bias makes us think we knew.

And can cause us to make poor decisions going forward.

That's the real lesson to take from Rich Strike's long shot payoff. If you actually considered putting Rich Strike in an exacta bet, you're kicking yourself: A $2 bet paid $4,100.

If you actually considered putting Rich Strike in a trifecta, a $1 bet paid $14,800.

And as for the superfecta, picking the top four horses in order? A $1 bet paid $320,000.

But I didn't. Not really. And neither did most people -- because Rich Strike was a long shot for a reason.

In seven starts, his only win was in a $30,000 claiming race for horses that had never won. (He was claimed after the race, which means he cost his owners $30,000. One of the favorites, Taiba, was purchased for $1.7 million last year.) 

He was "no factor" when he finished fifth against Derby favorite Epicenter in December. He only passed one horse in the stretch of his last race before the Derby.

His jockey had never won a graded stakes race, the races reserved for the highest-quality horses.  

No one knew Rich Strike would win.

Not even his owners. They entered the horse in the Derby because just having a Derby horse seemed like a dream. (After the race, one said, "What planet are we on?") 

How to Avoid Hindsight Bias

If you didn't bet on Rich Strike, did you make a poor decision? Nope. Thinking you did could cause you to make countless similar bets in the future that don't pay off. 

Decisions can't always be evaluated by outcomes; the only way to judge a decision is to decide whether you made the best decision you could given the information available at the time. 

Getting it right doesn't mean you made a great decision; you may have just been lucky. Getting it wrong doesn't mean you made a poor decision; factors you -- even few -- could have predicted may have influenced the outcome.

Smart people make the best decisions they can, and then evaluate the outcome to see how they can improve their decision-making process. To incorporate data they might have missed. To seek input instead of going it alone. To test, revise, and test again before going relatively all in.

Because in hindsight, we're all tempted to believe we knew.

But what matters most is resisting that temptation and accepting the fact we didn't know.

Because that's the best way to ensure you make smart decisions in the future.