18th June 2026
The trap of over confidence: why familiarity doesn't equal understanding
We assume we understand how to manage our money — but does the research show us that's true? And what can firms do about it?
In 2002, Leonid Rozenblit and Frank Keil asked Yale undergraduates a simple question: how does a zipper work? Respondents were confident that they understood the mechanism of a zipper, until they were asked to write a detailed explanation. What they found in their experiment was that familiarity doesn’t guarantee understanding. When participants were asked to rate their understanding again, they consistently rated themselves significantly lower than before they were asked to explain their thinking.
While you may never need to know how a zipper or a speedometer works, how much do you truly understand about the bank accounts and credit cards you use every day? Outside of those working in financial services, how many of us could confidently explain the mechanisms behind how interest is worked out or the exclusions in our insurance policies?
The illusion of explanatory depth
In their paper, Rozenblit and Keil suggest that individuals make sense of the world through ‘folk theories’ – incomplete, imperfect explanations that make intuitive sense. These guide our decision-making on a daily basis and help us infer and interpret the information we receive from our surroundings. However, it’s only when we begin to explain something that we’re confronted with how shallow our understanding of it actually is. Rozenblit and Keil called this the ‘illusion of explanatory depth’.
Another example of this principle in action is a 2006 experiment conducted by Rebecca Lawson, where participants, half of whom owned a bicycle, were assessed on how much they understood about how they work. The vast majority of participants were unable to accurately draw one from memory, or to identify the right configuration of the frame, pedals and chain.
What stands out is how confidently participants rated their knowledge prior to being tested, and how this changes after the assessment. If you swap the bicycle for a pension or a mortgage, the gap only widens: customers are confident they understand the terms of their products and how to manage them, until they’re asked to actually explain them.
These examples, alongside a number of other studies in the field, demonstrate how people rely on simplified explanations to make sense of complex systems. They may not be accurate, but they are coherent and follow an internal logic. Such explanations are sufficient to navigate daily interactions with objects and processes that we don’t understand, where we’re rarely asked to explain how they work on a technical level. As demonstrated by the changes in confidence levels for participants in the study by Rozenblit and Keil, we assume we remember and understand our surroundings better than we do.
Where customer harm happens
Under the Consumer Duty, firms need to find evidence that customers can and do understand the information they’re provided with. One way of measuring this is through communications testing. This involves assessing how well customers from the target audience understand how their product works and how to use it.
Our own testing research has found valuable insights into how customers engage with credit card documentation and application journeys. In our 2023 report, we built a mock credit card application and assessed comprehension twice: once without referring participants to the product documents and once allowing customers to have all the documents open in front of them. While only 39% of participants answered the questions correctly without referring to their documents, this number only grew to 63% when participants were able to refer back to them with unlimited time to check. In our focus groups, we found that participants who had described the information as ‘straightforward’ or were confident in their understanding of it were as susceptible, if not more, to providing incorrect answers when asked to explain or locate key product information.
Where this becomes a problem for consumers is the trap of overconfidence. Research across the sector indicates that consumers often overestimate how well they understand financial products. Evidently, this can lead to poor outcomes. In a 2017 review conducted by Stolper and Walter, they identified gaps between self-rated and tested literacy.
What can providers do about it?
While a range of factors influence how customers perceive and engage with their finances, how can firms address the clear gaps in knowledge across their customer base?
Build opportunities for customers to check their understanding
Explicitly confronting customers with the gap between their understanding and how a product works may be an effective way to prompt more careful engagement. This doesn’t need to be a quiz a customer needs to pass before taking out a credit card – even a short prompt asking customers to read and engage with information about how interest works could improve understanding, and therefore outcomes.
Ensure proportionate friction at key touch points
Providing points of friction such as confirmation steps and interactive resources such as repayment simulators can help customers interact with product information in more engaging ways. Information alone doesn’t solve the problem – but creating appropriate friction points in the journey offers more chances for customers to stop and examine how a product or service works.
Test, test, test
Assessing how your communications perform with real-world customers can identify where the gaps in understanding are most significant and how to address them. However, as demonstrated, asking customers whether they understand their Ts&Cs is not enough. A robust research methodology involves testing comprehension through questions framed around the information provided and how to apply it practically to their products.
Sources
Pilat, D., & Krastev, S. (2021). The illusion of explanatory depth. The Decision Lab.
Rozenblit, L., & Keil, F. (2002). The misunderstood limits of folk science: an illusion of explanatory depth. Cognitive Science, 26(5), 521–562.
Lawson, R. (2006). The science of cycology: failures to understand how everyday objects work. Memory & Cognition, 34, 1667-1675.
Fairer Finance (2023). Improving disclosure in the consumer credit market.
Stolper, O. A., & Walter, A. (2017). Financial literacy, financial advice, and financial behavior. Journal of Business Economics, 87, 581–643.
Kramer, M. M. (2016). Financial literacy, confidence and financial advice seeking. Journal of Economic Behavior & Organization, 131, 198–217.