The Familiarity Trap

Why following something closely builds confidence but not edge

There is a reason we bet on sports we watch. Familiarity feels like insight.

I have been to Old Trafford, Anfield and the Johan Cruyff Arena. Football feels knowable. You see the patterns, sense the momentum, feel like you can predict what happens next.

This helps explain why sports betting has grown so large.

Prediction markets are platforms where people bet real money on future events. Elections, sports, Fed rate decisions, even the weather. Polymarket is among the largest. Its monthly volume rose from about $54 million in January 2024 to roughly $2.6 billion in November. Cumulative volume for the year exceeded $9 billion.

The invitation is tempting.

Crowd prices can feel more objective than pundits talking. Put your money where your mouth is and the market reveals the true odds. But following an election closely does not guarantee better predictions. It just feels that way.

The Illusion of Control

In 1975, a psychologist named Ellen Langer identified this as the illusion of control.

She ran experiments where outcomes were pure chance. Card games where the higher card wins. Lotteries where every ticket has the same odds. No skill involved.

Yet people behaved as if skill mattered. When opponents looked nervous, participants bet more. When participants chose their own lottery numbers, they demanded more than four times the price to sell their tickets.

The game and the odds were the same. But choosing created a sense of influence over something entirely random.

Langer found the same triggers such as familiarity, choice, competition or personal involvement. These feel like skill.

In games of chance, they raise confidence but not accuracy.

Watching Closely Does Not Mean Seeing Clearly

Consider football betting.

Marketing professors Martin Spann and Bernd Skiera studied forecasts for multiple seasons of the German Bundesliga. They compared professional tipsters against simple prediction rules. The tipsters followed every game and wrote detailed commentary on formations and injuries.

In their dataset, they performed worse than a simple rule that picked the home team every time.

A skeptic might argue incentives. Tipsters sell stories, not accuracy.

That is a fair point. But it misses the psychological mechanism. Deep engagement can inflate confidence faster than it improves forecasting.

The same pattern shows up in brokerage accounts.

Finance professors Brad Barber and Terrance Odean studied 66,465 households at a large US broker from 1991 to 1996. The most active traders earned 11.4 percent annually. The market returned 17.9 percent.

They trailed the market by more than six percentage points a year.

The people doing the most felt busy and on top of things. The data showed they were often the ones furthest behind.

Many friends feel that checking prices often generates good outcomes. It certainly feels better than not checking at all. But constant action for the sake of feeling on top of things does not always lead where we expect.

Familiar Names, Familiar Traps

In Singapore, we see the same companies on buses and on the MRT platform. Family dinners and coffee with friends throw up the same familiar names.

There is nothing wrong with familiarity. But we should not mistake familiarity for having special insights.

When people with no vested interest in helping me start to offer advice, I mentally step back. I ask myself why they want to share this. Often it comes with good intentions. But too much advice can crowd out useful knowledge.

It is worth being skeptical about sure wins and hot tips.

Research on home bias shows this pattern across countries. Finance professors Kenneth French and James Poterba documented extreme domestic concentration decades ago. Some domestic tilt may be rational. But the typical level observed in research goes far beyond that.

The same applies to sectors.

Technology professionals often hold more technology stocks. Healthcare workers often concentrate in healthcare. Industry knowledge feels like investment insight.

But working in a particular sector does not automatically confer an edge. The knowledge is not zero, but it does not always translate into better decisions.

It sounds informed and feels like understanding, but describing is not the same as understanding what comes next.

The Cost of Certainty

Nassim Taleb, author of books such as The Black Swan and Fooled by Randomness, tells a story I think about often.

A trader whose earlier gains shrank sharply became certain about what could not happen next. He watched his positions daily. He knew the bonds intimately. When the market moved through his assumed floor, the losses cascaded.

In Taleb’s telling, the bonds ultimately traded below ten dollars and the trader’s net worth was reduced by almost half.

Years of watching had created certainty that had nothing to do with actual risk.

The same applies closer to home. Just because a company is often in the news does not mean we understand it better than the market does.

But thinking through carefully matters more than how often we see the name.

Taleb’s broader point is simple.

Past events always look less random than they were. After a stock doubles, the story explaining the rise seems obvious. After it collapses, the warning signs appear clear.

In the moment, familiarity fills the gap between uncertainty and confidence. It feels like foresight, but it is usually pattern-matching after the fact.

From Conviction to Calibration

Philip Tetlock, a psychologist who spent decades studying forecasters, found that the best predictors are not the most informed or most confident. The best are the most calibrated.

Beliefs are treated as probabilities. Evidence changes the forecast. Records track what went wrong.

A few years ago, I started writing down predictions with probabilities attached. It changed how I think about conviction. Not because the predictions got better. But because I got better at noticing when confidence was running ahead of evidence.

The sense that I can predict what happens next still arrives. But I no longer confuse that feeling with knowing.

Do I know something that is not widely known? Or do I just follow this closely?

Familiarity creates confidence. Confidence is not the same as edge.