How Overconfidence and the Dunning-Kruger Effect Create an Entire Economy of Illusion

How Overconfidence and the Dunning-Kruger Effect Create an Entire Economy of Illusion

One of the most intriguing, and commercially relevant concepts in behavioral economics is the Dunning-Kruger effect−the phenomenon in which relatively unskilled/uninformed individuals believe they are, in fact, more competent and knowledgeable than they actually are. We see this bias, which is closely related to the broader principle of overconfidence, in how it influences individual decisions. It can also create entire economic niches that can be monetized. One such niche is the booming industry of trading education, mentorship, and signals.

In recent years, social media and YouTube have been awash with personalities who promise to teach the average person how to make money trading stocks, options, and cryptocurrencies. These services usually promote their offerings through slick ads, screenshots of high returns, and the depiction of a luxury lifestyle. And although some providers may offer real value, most are less about educating and more about taking advantage of cognitive biases—especially in new and inexperienced traders.

The demand for these services are largely fueled by psychological overconfidence. A 2023 survey by eToro found that 68 percent of under-35 retail traders felt they could outperform the market, despite the academic evidence that 80–95 percent of retail traders statistically lose money over a multi-year period.  The less someone understands the subtlety of markets, the more likely they are to believe they can master them quickly—and the more likely they are to seek out fast-track solutions.

This is the Dunning-Kruger effect in action: beginners don’t realize how much they don’t know, and this somehow makes them more self-assured. This overconfidence fuels yet another highly profitable sub-sector of the retail trading industry. Platforms, courses, and “premium communities” spring into existence to meet this demand. Most offer to show you step-by-step roadmaps to profitability—but only if you pay for access. The cognitive bias literally forms the market.

And that market is massive. The global online trading education market is estimated to grow to a value of $1.9 billion in 2028, registering a 5.8% compounded annual growth rate, that’s according to research company IMARC Group. This ranges from platforms that provide structured learning and analytics tools, to more informal ecosystems, such as Discord groups and Telegram signal channels. Instead, many services slap a price tag of hundreds or even thousands of dollars on mentorship packages—often with no oversight, no certification, and no refund policy.

Some companies even advertise aggressively on platforms such as Google, YouTube, or Instagram—like this one, which provides “lifetime access” to trading signals for a one-time fee. And whether or not those signals work (hardly ever, honestly) is rarely provable, but the psychological hook remains powerful: “You’re smart, you just need the right system.”

Economically speaking, this is an example of supply meeting demand distorted by behavioral bias. The services need not produce consistent results; they just need to be credible enough to appeal to customers already predisposed to believe in their own untapped potential.

The consequences are significant though. First, there’s resource misallocation: thousands of hopeful traders might spend their time and money not focusing on bringing true value to the markets but on mirages. Second, there is market saturation: when lots of traders follow the same low-quality signals, slippage and losses can go up. Third, there is trust erosion in the broader world of financial education, as high-quality offerings get lumped in with the grifters.

With this in mind, not only does the Dunning-Kruger Effect affect psychology—it shapes market behavior as well. Overconfidence, and ignorance of our own limits, do create real economic niches, with the usual complement of service providers, price competition, and digital infrastructure. In the world of retail trading, that translates to a multibillion-dollar-a-year industry peddling confidence in the absence of competence. Acknowledging this behavioral foundation is a critical step for consumers and regulators to distinguish education from exploitation.