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CONFIDENCE TRAP: WHY AI MAKES US WORSE INVESTORS
Mint Bangalore
|November 11, 2025
Imagine you log into your investing app on a quiet Saturday morning. Your SIPs are compounding, and that small-cap fund you picked last year is finally showing double-digit growth. You feel smart. You feel in control. Then curiosity strikes. You open the new AI-powered chatbot and type: "Which small-cap stocks are undervalued right now?" In two seconds, a perfectlooking reply appears-bullet points, ratios, and persuasive reasoning. It sounds right. But amid the fluency lies a question the machine never asks: What if I'm wrong?
When fluency masquerades as wisdom
Large language models (LLMs)-the technology behind AI chatbots-are built for fluency, not accuracy. They generate confident, smooth answers. To the human ear, fluency feels like competence. Behavioural scientists call this the illusion of knowledge: mistaking a polished explanation for real understanding. History has seen this before. In the 1990s, researcher Terrance Odean found that online trading's ease made investors more confident but less successful.
Generative AI is simply the new interface for the same psychology. The faster the answer, the weaker the doubt. Behavioural finance shows investors lose not from lack of data, but from misjudging their own knowledge. Research by Barber and Odean found the most active traders earned the least. The reason? Selfattribution: crediting success to themselves and blaming failure on luck. Each "smart" trade rewrote memory: I knew it all along. As confidence grows, it detaches from reality. Now, we've built machines that mirror this habit-faster and more convincingly.
Why we fall for it
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