Economics Cognitive Biases Questions
The illusion of skill refers to the tendency of individuals to overestimate their own abilities and believe that they possess more skill or expertise than they actually do. In the context of economic decision-making, this bias can lead individuals to make suboptimal choices or take excessive risks based on their inflated perception of their own abilities. This can result in poor investment decisions, overconfidence in predicting market outcomes, and a failure to adequately consider or account for potential risks and uncertainties. Overall, the illusion of skill can have a significant impact on economic decision-making by distorting individuals' perceptions of their own capabilities and leading to irrational or misguided choices.