The Knowledge Illusion: How Overconfidence Shapes Our Lives (#256)

Summary

Podcast Summary: The Knowledge Illusion: How Overconfidence Shapes Our Lives (#256)

Host: Lynn Thoman
Guest: Phil Fernbach, Professor at the Leeds School of Business, University of Colorado at Boulder
Release Date: July 1, 2025
Podcast: 3 Takeaways

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1. Introduction

In this episode of 3 Takeaways, host Lynne Thoman welcomes Phil Fernbach, a professor renowned for his exploration of how human cognition often leads us to overestimate our understanding of the world. Phil discusses his book, The Knowledge Illusion, which delves into the pervasive nature of the "knowledge illusion" and its implications for individuals and society.

Notable Quote:

[00:02] Lynne Thoman: "Do people overestimate their understanding of the world? And if our knowledge is more superficial than it seems, what are the implications?"

2. Understanding the Knowledge Illusion

Phil Fernbach introduces the concept of the "knowledge illusion," also known in cognitive science as the "illusion of explanatory depth." This phenomenon describes how individuals believe they understand complex systems or issues more deeply than they actually do.

Phil explains a typical experiment to measure this illusion:

1. Self-Assessment: Participants rate their understanding of a topic.
2. Explanation Task: They attempt to explain the topic in detail.
3. Reassessment: Participants re-evaluate their knowledge after the explanation effort.

The discrepancy between initial and post-explanation ratings highlights the extent of overconfidence.

Notable Quotes:

[01:22] Phil Fernbach: "We know very little about the way that the world works. Yet that initial impression we have is that we understand things in some level of depth."

[01:28] Phil Fernbach: "We call that the knowledge illusion."

3. Pervasiveness of the Knowledge Illusion

The knowledge illusion isn't confined to abstract or academic topics—it spans everyday objects, political issues, and scientific debates. Phil's research encompasses a diverse range of subjects, from the mechanics of a zipper to the complexities of global warming and vaccination safety.

Notable Quotes:

[02:30] Phil Fernbach: "Across the whole gamut of those things? And that's why I got so interested in this... I found that this illusion is very broad. And applies to all these different domains."

4. Benefits of Overconfidence

While often viewed negatively, overconfidence derived from the knowledge illusion has its advantages. Phil underscores that humans are inherently social beings, relying on collaborative networks to share and build knowledge. This collective intelligence enables societies to achieve remarkable feats, such as technological advancements and economic growth.

Moreover, overconfidence fosters entrepreneurial spirit and risk-taking. Without a baseline level of confidence, many groundbreaking innovations and startups might never materialize.

Notable Quotes:

[05:14] Phil Fernbach: "That's kind of a secret to humanity's success that there's a real vibrancy to our ability to engage in risk-taking that benefits the whole, even though the individual undertaking that risk-taking is probably not going to succeed a lot of the time."

[07:35] Phil Fernbach: "That's one of the amazing things about human beings, that we're able to do things that we set our mind to, even if they're against the odds."

5. Drawbacks of Overconfidence

However, the knowledge illusion isn't without its pitfalls. Overconfidence can lead to extremism, political gridlock, and financial recklessness. Simplifying complex issues can result in rigid, uncompromising positions that hinder constructive dialogue and problem-solving.

Phil provides examples such as:

• Political Extremism: Oversimplified beliefs contribute to polarized opinions and hinder bipartisan cooperation.
• Financial Risks: Overestimation of understanding in areas like cryptocurrency can lead to risky investments and significant losses.

Notable Quotes:

[08:19] Phil Fernbach: "Extremism is usually not a good thing for social harmony, because extremism often does reflect sort of an oversimplification of a complex issue."

[09:45] Phil Fernbach: "If you feel like you understand the crypto marketplace so well that you know exactly what is going to happen, what do you do? Well, you'll maybe not just buy crypto, but you might actually buy crypto with leverage... you might lose your entire investment because you get what's called a margin call."

6. The Dunning-Kruger Effect

Phil delves into the Dunning-Kruger Effect, a psychological phenomenon where individuals with limited expertise in a domain overestimate their competence. Conversely, as one gains more knowledge, they often recognize the vastness of what they don't know, leading to a more tempered self-assessment.

For instance, beginners in playing guitar might feel exceptionally skilled, only to realize their limitations as they advance and understand the complexities involved.

Notable Quotes:

[10:39] Phil Fernbach: "The Dunning-Kruger effect is some really influential research... the people who have the least expertise in the domain often will overestimate their capabilities in that domain the most."

[11:39] Phil Fernbach: "When we start off in some domain, we tend to be more overconfident."

7. The Impact of Ignorance on Our Lives

Ignorance, in the context of the knowledge illusion, shapes our lives by influencing our confidence levels and decision-making processes. On one hand, overconfidence can drive positive actions and innovations. On the other, it can lead to harmful outcomes when individuals take unwarranted risks or adopt extreme beliefs.

Phil emphasizes the importance of embracing ignorance as a pathway to curiosity and continuous learning. Recognizing the limits of our knowledge can inspire us to seek understanding and engage more thoughtfully with the world around us.

Notable Quotes:

[13:23] Phil Fernbach: "Ignorance can shape our lives in leading us to feel like the world is overwhelmingly and overly complex."

[15:04] Phil Fernbach: "Opening our minds to the world being more complex and that there's more to learn than we naturally appreciate is a really great way to grow as human beings."

8. Three Key Takeaways

Phil Fernbach concludes the discussion with three actionable takeaways for listeners:

1. It's Okay Not to Know Everything: Embrace the complexity of the world and rely on collective knowledge rather than individual expertise.

   [15:39] Phil Fernbach: "The world is endlessly complex, and that's okay."

2. Explain More Than Advocate: Engage in dialogues that prioritize understanding and exploration over persuasion and advocacy.

   [15:39] Phil Fernbach: "We should try to explain more than we advocate... that type of dialogue can be much more productive."

3. Practice Intellectual Humility: Balance confidence with openness, grounding beliefs in the depth of understanding while remaining receptive to new information.

   [15:39] Phil Fernbach: "Find the midpoint... where the strength of our belief is grounded in how well we understand the issue."

These takeaways aim to foster a more thoughtful and collaborative approach to knowledge, mitigating the adverse effects of overconfidence while harnessing its positive aspects.

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Conclusion

Phil Fernbach's insights shed light on the intricate ways our perception of knowledge influences both personal and societal outcomes. By acknowledging the limits of our understanding and fostering environments that value collective intelligence and intellectual humility, we can navigate the complexities of the modern world more effectively.

Transcript

[Lynne Thoman]

Our brains can actually store only a very limited amount of information. Do people overestimate their understanding of the world? And if our knowledge is more superficial than it seems, what are the implications? Hi everyone, I'm Lynne Thoman and this is three Takeaways. On three Takeaways, I talk with some of the world's best thinkers, business leaders, writers, politicians, newsmakers and scientists. Each episode ends with three key takeaways to help us understand the world and maybe even ourselves, a little better. Today I'm excited to be joined by Phil Fernbach. He's a professor at the Leeds School of Business at the University of Colorado at Boulder. He studies how people think and is the co author of the Knowledge Illusion, which was chosen as an editor's pick by the New York Times. And he is the perfect person to ask why we think we know so much more than we do and the profound implications for individuals and society, as this is the topic of his book, the Knowledge Illusion. Welcome Phil, and thanks so much for joining three Takeaways today.

[Phil Fernbach]

Thanks so much. I'm excited to be here.

[Lynne Thoman]

Phil, how do you determine how much people know compared to what they think they know?

[Phil Fernbach]

Well, in one kind of experiment we would use a three part design. So we would start by asking them to assess their own knowledge of something. How well do you feel you understand this? Then we would ask them to explain in detail how it works. And then we would ask them to re rate their knowledge. And the difference between their rating at time one and their rating at time two after they've engaged in the explanation is the measure of how overconfident they were before they tried to explain. It turns out that we know very little about the way that the world works. Yet that initial impression we have is that we understand things in some level of depth. We call that the knowledge illusion. Sometimes the more jargony term in the cognitive science literature is the illusion of explanatory depth, the feeling that we can explain things much more deeply than we can.

[Lynne Thoman]

And where do people experience this illusion of knowledge? Is it in everyday objects? Is it in political issues? Is it in scientific topics?

[Phil Fernbach]

Across the whole gamut of those things? And that's why I got so interested in this, because I started by looking at work where they tested everyday objects like the toilet or the zipper or the a stapler. But when I started looking into this, I started doing work in the domain of politics, political issues and scientific issues like global warming or the safety of genetically modified foods or vaccination. And I found that this illusion is very broad. And applies to all these different domains.

[Lynne Thoman]

So shocking to me. And that essentially enables us to believe that our opinions are justified by our knowledge and that our actions are grounded in justified beliefs, even though our knowledge is an inch deep.

[Phil Fernbach]

That's exactly right. The fact that we oversimplify the world and we only see it at a simple level allows us to feel like those issues are not as complex as they actually are. And that gives us the support for taking a really strong position on them.

[Lynne Thoman]

And that also gives us the confidence for bold actions and progress.

[Phil Fernbach]

Exactly. Our positions on issues. Who would care if you just had a position on an issue? But our positions determine our behavior, and that's what we really care about.

[Lynne Thoman]

And can you give some examples?

[Phil Fernbach]

Sure. If somebody believes, for instance, we just had a horrible attack in Boulder, Colorado, where innocent protesters were were attacked by a person who threw Molotov cocktails into the crowd. And that's an action that is definitely predicated on that person's belief about the issue. And, you know, if we ask the person to explain all of the intricacies of the issue, I would bet dollars to donuts that they probably have an oversimplified view.

[Lynne Thoman]

What are the benefits of this illusion of knowledge?

[Phil Fernbach]

First, let me take a step back and talk a little bit about where we think the illusion comes from. People are not really built for individual level thinking. What we're really built for as human beings, what makes human beings special and different from any other animal is our ability to collaborate in these vast networks where we share knowledge and different members of our community have different pieces of knowledge, and we have the cognitive capabilities to be able to combine knowledge, collaborate, specialize, and share the burden that allows us to pursue really complex goals. That's what we think gives rise to the illusion. So we participate in these communities where we're just very used to knowledge being not in our own heads, but being out there in our communities and sort of everything works. We believe that by virtue of participating in these communities, we sort of don't draw very firm boundaries between the knowledge in our heads and that exists out in our communities. And so it's like, how can people be so smart and so dumb at the same time? That's sort of the paradox at the heart of human beings. People engage in crazy behavior. They believe crazy things. You look at somebody and you say, how can they possibly believe that? What is wrong with them? And yet you look at human society and it's like, wow, we went to the moon. We do incredible stuff. That's sort of the bright Side of this illusion is the fact that it allows us to participate in our communities in ways that can really be productive and successful. What we're talking about is overconfidence. People are habitually overconfident about their knowledge, and overconfidence can be a very dangerous thing. But it can also be a really important thing. And if you think about, for instance, an entrepreneurial culture where people like to undertake business risks, to start new companies, to chase after new ideas, if you actually understood all the complexity involved and the likelihood of failure, most entrepreneurs would never get started. So it's also kind of a secret to humanity's success that there's a real vibrancy to our ability to engage in risk taking that benefits the whole, even though the individual undertaking that risk taking is probably not going to succeed a lot of the time. So that's sort of the bright side of overconfidence. It allows us to jump in with two feet into an endeavor that maybe, you know, very unlikely to succeed.

[Lynne Thoman]

It essentially gives us the confidence or the overconfidence to take bold actions.

[Phil Fernbach]

Absolutely. How many people have gone to fix their broken toilet instead of calling the plumber, opened up the thing and realized they have no clue what they're doing? So they were overconfident. But you know what? They might go and look it up and figure it out. And now they've gained some valuable piece of knowledge for the future. And think about all the entrepreneurs who went to start companies and failed. You know, entrepreneurs talk all the time about how their failures were much more meaningful in their life than their success because they learned something really important that helped them to succeed the next time. So I think that that sort of double edged, sort of overconfidence is really important to understand.

[Lynne Thoman]

Interesting. That would, for example, enable President Kennedy to say, we're going to land a man on the moon within 10 years.

[Phil Fernbach]

That's right. I don't know if Kennedy himself was overconfident when he made that statement. He might have thought that this nearly impossible, but that it would promote a lot of innovation. But the fact that people are willing to jump in and take him up on that moonshot, that's one of the amazing things about human beings, that we're able to do things that we set our mind to, even if they're against the odds.

[Lynne Thoman]

Can you talk more about the drawbacks? How the illusion of understanding or knowledge can lead to war or nuclear accidents or partisan gridlock?

[Phil Fernbach]

Absolutely. I think the idea of political gridlock is a good one. That's something that has been getting worse and worse and worse and worse in the United States for the last 20 to 30 years and maybe even longer. We used to have a lot more people in the middle. And why is that? I think it's because a lot of these issues that we talk about are demagogued. They're oversimplified. And because you're a member of the different community where people are advocating for different things, you take on the beliefs of your community, and then you feel like you understand them by virtue of taking them on. I do think that all kinds of negative outcomes in society have to do with extremism in general. And I've done a lot of work looking at the roots of extreme beliefs. So, for instance, why do people have beliefs that are counter to the scientific consensus? And those really extreme beliefs can often reflect the largest amount of overconfidence about how much one understands the issue. And, you know, extremism is usually not a good thing for social harmony, because extremism often does reflect sort of an oversimplification of a complex issue. So those are some examples when you think about more at the individual level. We talked before about risk taking being a good thing, but risk taking didn't also be a bad thing. You know, if you feel like you understand the crypto marketplace so well that you know exactly what is going to happen, what do you do? Well, you'll maybe not just buy crypto, but you might actually buy crypto with leverage, meaning you borrow money to buy crypto. And then when the prices go down, not only does your investment go down, but you might lose your entire investment because you get what's called margin called. So there tends to be this slippery slope with people taking on more and more financial risk when they feel that they understand things. And I think it's a very common thing for people to. To learn that lesson. You know, you touch the stove and you get burned, and maybe you learn your lesson and you are more careful in the future, you might have really harmed yourself in the process.

[Lynne Thoman]

And an effect that to me is really interesting is the Dunning Kruger effect. Can you explain briefly what that is?

[Phil Fernbach]

The Dunning Kruger effect is some really influential research that is closely related to the kind of things I've been talking about today and the work that I've done. The main finding is that if you look in a domain, the people who have the least expertise in the domain often will overestimate their capabilities in that domain the most. So if, for instance, you ask people how funny they think they are, and then you ask them to make jokes and have someone else evaluate how funny those jokes are. Then you can get an objective measure of how funny they are. And you look at the difference between those two things. It turns out that the people who are the least funny overestimate their ability to generate humor the most. They call it unskilled and unaware. So the people who are most unskilled in a domain are the most unaware and the least able to accurately evaluate their own capabilities.

[Lynne Thoman]

So interesting. So the unskilled just don't know what they don't know.

[Phil Fernbach]

I think that's exactly the right way to think about the Dunning Kruger effect. And in fact, the way that Dunning and Kruger think about their own effect. As we gain more knowledge in a domain, we appreciate how much goes into it, how complicated it is, how much there is to know, and all of that kind of stuff. And that tends to moderate our ability to be overconfident to some extent. When I first started playing guitar 25 years ago, I played for a few months and I thought I was really Good. And now, 25 years later, when I'm actually pretty good, I think I suck. And it's because I know how much there is to know. And I've seen all the people who are better than I am and all of the learning that I have to do. And so I think that's a very natural human thing, is that when we start off in some domain, we tend to be more overconfident.

[Lynne Thoman]

And is it fair to say that according to Dunning, our overrating of our skills matters because all of us are unskilled in most domains of our lives?

[Phil Fernbach]

Yeah, absolutely. You know, some people are kind of habitually less overconfident, tend to question more whether they actually understand something, how good they are at things and stuff like that. But for most of us, we tend to be overconfident most of the time and in most domains. And that is because in general, you can't be expert in that many things. The world's just too complicated. And so the fact that the world is so complicated, there are so many different domains of skill and knowledge, means that we are going to tend to be. Most of us are going to tend to be overconfident about most things most of the time. And that's a pretty profound observation, I think.

[Lynne Thoman]

How does our ignorance shape our lives?

[Phil Fernbach]

It can shape it in one of two ways. One is it's going to shape our lives in ways of making us overconfident about our understanding of things. And bring along all of the stuff that we've been talking about, both good and bad. Another way that ignorance could shape our lives is that we could go the other direction. Say your listeners now start thinking every time. Like every time they go to the toilet, they're like, oh, my gosh, I don't know how this works. And they become diffident. That could shape your life in a very different way, not necessarily in a good way. Ignorance can also shape our lives in leading us to feel like the world is overwhelmingly and overly complex. I think the best way that ignorance can shape our lives is if we sort of embrace it and we become curious. That's the way I like to think about it, which is that the world is incredibly complex and there's so much to learn and know, and that provides a learning opportunity that provides for us to be curious and try to learn about why it is that your neighbor thinks differently about something. Or why is it that my friend loves doing X, but it seems so dumb to me, you know, maybe I should go check it out. That's sort of the productive way to think about ignorance. That it's a natural thing and not something that we should be scared of or something that we should be embarrassed about, but it's something that we should embrace.

[Lynne Thoman]

It's so interesting to me that ignorance shapes our lives in ways that we do not realize, and that people tend to do what they know and that they fail to do the things they have no conception of. And in that way that ignorance profoundly shapes our lives. Do people fail to reach their potential because they're not aware of the possible?

[Phil Fernbach]

I think that's right. It's a big and exciting world. And I think most people end their lives regretting not the things that they do, but the things that they didn't do. And so I think opening our minds to the world being more complex and that there's more to learn than we naturally appreciate is a really great way to grow as human beings.

[Lynne Thoman]

I love that idea of opening our minds to the world. Phil, what are the three takeaways you'd like to leave the audience with today?

[Phil Fernbach]

The first one is that it's okay not to know everything. The world is endlessly complex, and that's okay. Human beings are successful by virtue of the fact that as individuals we don't know that much. But as groups, we can know a lot. The second takeaway is that we should try to explain more than we advocate. Usually when we engage in dialogue, we advocate, that is, we say, here's what I believe and this is why, and this is why you're wrong. But it can be much more mind opening to engage in dialogue where instead we try to explain. We ask questions like how does this work? What would happen if we did X, Y or Z? That type of dialogue can be much more productive. The third takeaway is that it can be good practice to try to practice intellectual humility. Intellectual humility is a midpoint between being overconfident about how well we understand things and being diffident feeling like we can't possibly understand anything and we can't take a position on anything. We need to get in the habit of finding a middle ground where the strength of our belief in an issue or a position is grounded in how well we understand the issue. That can lead us to both not being overconfident when it can be really dangerous, but also being open minded and pursuing new opportunities when they arise.

[Lynne Thoman]

Bill this has been great. I very much enjoyed your book the Illusion of Knowledge. Thank you.

[Phil Fernbach]

Thanks for your time.

[Lynne Thoman]

If you're enjoying the podcast, and I really hope you are, please review us on Apple Podcasts or Spotify or wherever you get your podcasts. It really helps get the word out. If you're interested, you can also sign up for the Three Takeaways newsletter at 3takeaways.com, where you can also listen to previous episodes. You can also follow us on LinkedIn, X Instagram and Facebook. I'm Lynne Thoman and this is three Takeaways. Thanks for listening.