The illusion of understanding occurs frequently due to selection bias and confirmation bias. By selecting only data that support one’s position and ignoring relevant data that would falsify or compromise one’s position, one can produce a convincing but misleading argument. By seeking only examples that confirm one’s belief and by ignoring examples that disconfirm it or reveal the insignificance of the data you’ve put forth, one can easily create the illusion of understanding. The illusion of understanding is particularly prominent in the field of economic forecasting.
Think about it. If stock analysts could really beat the market consistently, wouldn’t they be stinking rich? Do you really think they are a clan of benevolent elves whose only goal is to help people like you get rich from their technical advice? Their cousins appear in infomercials all the time, telling stories about unfathomable riches that await you if you invest in their program. That’s how they make their money: not by using their program, but by selling it to others!
- Unnatural Acts that can improve your thinking: selection bias (illuminutti.com)