What is the Illusion of Knowledge?

I first discovered the illusion of knowledge theory whilst reading "The Invisible Gorilla." I highly recommend this book for anyone who is interested in human perception.

What is the Illusion of Knowledge? 

The illusion of knowledge occurs whenever people think they know more than they actually do. For example, you may feel confident explaining simple questions, only to realise that your understanding is shallow when placed under pressure. 

In one genius study, participants were asked to rate their understanding of how a bicycle works on a 1-7 point scale. Participants on average rated their knowledge relatively high, only to realise that they missed multiple key components when their design was assessed objectively. 

Examples of the Illusion of Knowledge?

Reading text repeatedly yields diminishing returns in actual knowledge, however it increases familiarity leading to a false sense of understanding. We can only interpret our true knowledge by testing ourselves, interestingly we avoid doing anything that probes the limits of our own knowledge. 

Considering the ease of testing ourselves, humans rarely peruse such action as a way of avoiding reality. Even when we do test our own knowledge, we only focus on the pieces of information we do know and ignore all the information that is missing, resulting in a false impression that we have a good understanding.

Why is more Knowledge sometimes less?

One study supports the concept of more knowledge sometimes being less using a simulated financial market, in which participants could allocate shares into two separate mutual funds, A or B. The simulated time-frame lasted 25-years. Participants could choose how often they would like to receive feedback about their investments.

The majority of people would assume that receiving information as often as possible is the best choice. However, findings showed that participants who got performance information once every five years, earned more than twice as much as those with monthly feedback. 

The reason for these unusual findings is because one of the mutual funds had a low, but consistent rate of return. In contrast, the other fund acted like a stock and had a much higher rate of return, but also a much higher variance.

In the long term the fund that acted like a stock yielded the best results, however participants who received information too often assumed that their investment strategy was wrong. Sometimes more information can be misleading, and receiving less information can actually help us make better decisions. 

"To make truly informed financial decisions, you must have an accurate picture of the long-term returns and short-term volatility you should expect from each of your investment options, and you must evaluate these factors in light of your own ability to tolerate risk."

What is the Dunning-Kruger Effect?

The Dunning-Kruger Effect is an interesting concept that applies to the illusion of knowledge. The diagram demonstrates how we rapidly gain confidence when we first learn something new.

Rapid growth in confidence occurs due to the fact that we previously had zero knowledge of the topic, hence when we first learn large amounts of information we believe we have developed a strong understanding.

In reality the more we learn, the more we realise that the topic is more complex than we anticipated, at this point we come to the realisation that we overestimated our own understanding. 

Why is the Illusion of Knowledge so Influential?

People often make the wrong choice, and making the correct choice is difficult. We often lack the necessary information and insight to evaluate a choice effectively. Even when we have the knowledge to recognise the correct choice, we often prefer a different choice.

The illusion of knowledge is so strong because people prefer experts who display the belief that they know more than they actually do. In contrast, experts who are aware of their limits exhibit signs of ambiguity. 

Experts who are more influenced by the illusion of knowledge are more likely to make audacious decisions, which are just as likely to be incorrect, yet we place more trust into them. 

Being aware that our own perception of our knowledge may be inflated is the best way to avoid this illusion. However, it is important to realise that everyone is effected by this illusion. Even people aware of this illusion are still influenced to some extent.

When we can calibrate our judgements and receive feedback on our decisions, we can reduce the influence of the illusion of knowledge. When we do not get immediate feedback about our mistakes it is harder to improve and form accurate perceptions of our actual understanding. 

What is the Feynman Technique?

The Feynman technique is one way in which I believe we can resist falling into the illusion of knowledge, and receive a more accurate representation of our true understanding into a particular topic. 

In short, the technique involves assessing knowledge via the act of teaching. For example, if the topic is explaining how a bike works imagine teaching the topic in simple terms to another individual with zero knowledge.

The gaps in knowledge that emerge can help provide a more precise scope of actual understanding. Testing ourselves is the greatest way to reduce the influence that the illusion of knowledge has on our perception.