Economics Cognitive Biases Questions
The illusion of superiority, also known as the Dunning-Kruger effect, refers to the cognitive bias where individuals overestimate their abilities or knowledge in comparison to others. This bias can affect economic decision-making by leading individuals to make overconfident and potentially irrational choices. People with the illusion of superiority may underestimate risks, ignore relevant information, and make poor financial decisions. This bias can hinder individuals from seeking advice or expertise, leading to suboptimal economic outcomes.