Pre-rated stocks, fixed-rate deduction, annualised credit – all of these are completely made up financial terms, but if you consider yourself an expert you'd probably be easily tricked into thinking they were real, according to new research published in the journal Psychological Science.
It shows how know-it-all types who consider themselves well-informed in their area of expertise are much more likely to believe fake terms, and may even claim to have some knowledge and experience in the fictitious area.
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Scientists at Cornell University in the US found the trend by carrying out a series of experiments comparing how much knowledge people thought they had of certain topics with their awareness of whether terms were true or false.
One hundred participants were asked to rate their general knowledge of personal finance, as well as their knowledge of 15 specific finance terms. Most of the terms on the list were real, such as Roth IRA, inflation, home equity, but the researchers also included the three made-up terms listed at the start.
"The more people believed they knew about finances in general, the more likely they were to overclaim knowledge of the fictitious financial terms," said lead researcher Stav Atir.
The same pattern emerged for other domains, including biology, literature, philosophy, and geography.
Indeed, people who believed they were biology experts claimed to know the meaning of non-existent terms such as “meta-toxins” and “bio-sexual”.
The scientists, who have labelled this trend “over-claiming”, say the results show how people rarely have an accurate perception of their own expertise.
"Our work suggests that the seemingly straightforward task of judging one's knowledge may not be so simple, particularly for individuals who believe they have a relatively high level of knowledge to begin with," said Atir.
So, if you think you've already got it all sussed, it may be time to invest in a good financial dictionary.