The Illusion of Knowing: How Data Deceives and Wisdom Gets Lost

Seeing Isn’t Always Believing

In 1850, French economist Frédéric Bastiat offered a deceptively simple insight: to evaluate economic choices, we must examine not only what is immediately visible (“the seen”) but also the hidden consequences (“the unseen”). This distinction remains one of the most misunderstood—and most violated—principles in public policy and personal finance.

A similar lesson comes from the streetlight effect: a man searches for his lost keys under a streetlamp—not because he dropped them there, but because it’s the only place with light. In today’s world of dashboards, big data, and algorithmic filters, we are surrounded by information. But we risk focusing only on what’s illuminated—what’s easy to measure—while overlooking what truly matters. Data abundance creates the illusion of clarity.

With the help of Bastiat and modern economic thinkers, this article explores the realities of today’s data-abundant “seen” world—and guides you through the unintended consequences, hidden tradeoffs, and overlooked incentives that define the “unseen” world. The goal is not to reject data, but to sharpen how we interpret and act on it. Bastiat gave us the lens. What follows are practical ways to use it.

At Personal Finance Reimagined (PFR) and The Curiosity Vine, we help individuals build a consistent, repeatable decision process—one that moves beyond surface-level metrics to uncover tradeoffs, incentives, and opportunity costs. We don’t just teach Bastiat’s insight—we help people apply it using modern tools.

About the author: Jeff Hulett leads Personal Finance Reimagined, a decision-making and financial education platform. He teaches personal finance at James Madison University and provides personal finance seminars. Check out his book -- Making Choices, Making Money: Your Guide to Making Confident Financial Decisions.

Jeff is a career banker, data scientist, behavioral economist, and choice architect. Jeff has held banking and consulting leadership roles at Wells Fargo, Citibank, KPMG, and IBM.

The Broken Window and the Missed Investment

Bastiat’s famous parable begins with a shopkeeper whose window is broken. Neighbors console him by pointing out that the glazier now has work. The seen benefit is clear: economic activity. But the unseen loss—the foregone investment or purchase the shopkeeper could have made instead—reveals the deeper truth: destruction does not create value. The shopkeeper allocates his resources, time, and money to address issues rather than expanding his business. This forces an essential yet previously undesired use of resources.

PFR Example

Graduating students often consider buying a new car. On the surface, the monthly payment appears manageable. But the unseen? Lost investment returns, delayed debt reduction, and restricted career mobility. At PFR, we coach students to ask:

• Does this new fixed payment keep you from alternative, higher benefit uses of that money?

• What alternative uses of this money might deliver greater value?

• What future options am I closing off?

The Illusion of Job Creation

Government programs frequently tout job creation as a success metric. Bastiat reminds us: jobs created by public spending are seen; jobs that are crowded out, delayed, or never created are unseen.

Thomas Sowell describes this as “Stage One Thinking”—focusing only on short-term, visible results. His critique reinforces Bastiat’s call to trace longer-term and system-wide effects.

Zoning and Opportunity Example

In our The Problem with Zoning Is Good Intentions, we show how well-meaning safety rules evolved into design mandates and density restrictions.

• Seen: orderly neighborhoods and growing home values for a small number of incumbent homeowners

• Unseen: a growing shortage of affordable housing, exclusion of younger and lower-income residents, and a regulatory burden that benefits insiders and costs taxpayers

The article argues for blank slating—a governance reset that eliminates obsolete rules unless they can be re-justified based on safety, fairness, or flexibility.

Automation: Threat or Empowerment?

Critics of automation often emphasize job displacement. That impact is immediate and visible. But Bastiat would push us to also examine productivity gains, lower costs, and newly created roles—benefits that emerge more gradually and often escape notice.

Adam Smith, in The Wealth of Nations, recognized that economic growth depends on increasing specialization and the efficient use of capital. Automation reallocates labor—it doesn’t eliminate the need for human value creation.

PFR Insight

We use AI-enabled tools like Definitive Choice to help students evaluate long-term financial decisions. A decade ago, this level of modeling required an expensive financial advisor. Today, it is inexpensive and easy to access. The unseen dividend is not just lower cost—it is broader access and higher-quality decisions.

Public Spending and the Hayekian Blind Spot

Bastiat’s critique of government expenditure aligns with F.A. Hayek’s warning in his Nobel Address, The Pretence of Knowledge. Hayek argued that central planners often suffer from the illusion that they possess enough data and models to engineer optimal outcomes. In reality, the economy is shaped by dynamic, local knowledge that no single entity can fully grasp or control.

• What is seen—budgets, forecasts, policy briefs—creates the illusion of mastery.

• What is unseen are the unintended distortions, missed signals, and suppressed innovation caused by this overconfidence.

James Buchanan, Nobel laureate and founder of Public Choice Theory, adds that public actors respond to their own incentives—career advancement, budget maximization, and election cycles:

• Seen: policy outputs

• Unseen: misaligned incentives, bureaucratic inertia, long-term inefficiencies, and opportunity costs borne by citizens

Curiosity Vine Example

Subsidized student aid programs aim to improve access. But they often inflate tuition, encourage over-borrowing, and distort career incentives. Instead of choosing colleges based on return on investment, students chase prestige.

At PFR, we respond by helping high school students and families develop their unique understanding of college benefits. This understanding is then applied to relevant college alternatives, including non-traditional paths like community college. The best college decision, one that optimizes ROI, is achieved by turning abstract risks into structured decision-making inputs.

The Marketplace as Decision Engine

More options and data give the illusion of better outcomes. But without a decision framework, choice can become paralyzing or misinformed.

Russ Roberts, in The Choice: A Fable of Free Trade and Protectionism, dramatizes Bastiat’s principle. A businessman fears job loss from foreign competition—the seen. But economist David Ricardo reveals the unseen:

• Lower consumer prices

• Labor reallocation to more productive sectors

• Innovation born from economic freedom

PFR Application

We use choice architecture to help students and entrepreneurs structure complex decisions. Consider the tradeoff between a paid internship and a mission-driven project:

• The first offers short-term income.

• The second may unlock long-term skill development, connections, or brand equity.

Our tools illuminate these second-order effects—helping users see what would otherwise be missed.

What is the best answer? A paid internship and a mission-driven project? It could be either. The answer is unique and based on individual tradeoffs. Critically, it is the decision process that will reveal the best answer for that individual. The better the process, the better the answer.

Goodhart’s Law and the Metric Illusion

Originally coined in the context of central banking, Goodhart’s Law emerged as a critique of using monetary aggregates as policy targets. British economist Charles Goodhart observed that once a measure—like money supply or inflation—becomes a policy objective, it loses its effectiveness as a signal of underlying economic health.

“When a measure becomes a target, it ceases to be a good measure.”

This insight now extends well beyond monetary policy. In our data-driven world, the law applies to education, business, healthcare, and personal finance. Once metrics become the object of optimization—whether GDP, test scores, ROI rankings, or employee performance goals—they distort the very behavior they aim to guide.

Frédéric Bastiat issued a similar warning. The moment we focus solely on what is seen—measurable outcomes—we risk overlooking the unseen: tradeoffs, incentives, opportunity costs, and innovation forgone.

At Personal Finance Reimagined, we see this regularly in college decision-making. Students often fixate on college rankings, average starting salaries, or debt thresholds. While these indicators have value, they become misleading when treated as end goals. Our tools help restore balance—highlighting what is measurable and meaningful.

Consider workplace performance reviews. Targets tied to quotas or KPIs can be gamed. What is unseen—mentorship, collaboration, initiative—often goes unrecognized. As Goodhart and Bastiat remind us: clarity in measurement does not guarantee wisdom in decision-making.

A Modern Bastiat Test: Minimum Wage and Automation

Minimum wage policies are often framed around fairness. The seen benefit: higher wages for those who remain employed. But the unseen effects include:

• Automated replacement of entry-level roles

• Slower hiring in small businesses

• Fewer first-job opportunities for younger workers

PFR Perspective

In How Minimum Wage Laws Are Fast-Tracking Your Replacement by AI, we show how mandated wage floors change the cost-benefit calculus. Employers don’t stop providing services—they adapt with kiosks, software, and robotics. Those most vulnerable to job loss are often left out of the discussion.

Conclusion: Train the Eye to See the Unseen

Bastiat’s insight is more relevant now than ever. In a world that celebrates immediacy, we must return to a discipline of reflective thinking. When making decisions—whether personal, professional, or policy-related—ask:

• What am I not seeing?

• What tradeoffs am I ignoring?

• What incentives and opportunity costs lie beneath the surface?

At Personal Finance Reimagined, we provide the modern tools to move from awareness to action. With behavioral science, choice architecture, and structured decision tools, we help individuals and institutions make better decisions—not just for today, but for the future.

Bastiat gave us the lens. Sowell, Hayek, Buchanan, Smith, Roberts, and Ricardo refined the frameworks. Goodhart warned us about the danger of misplaced targets. PFR turns these insights into practical systems.

The rest is up to us.

Resources for the Curious

• Bastiat, Frédéric. That Which Is Seen, and That Which Is Not Seen. 1850.

• Sowell, Thomas. Basic Economics. Basic Books, 2011.

• Hayek, F.A. The Pretence of Knowledge. Nobel Lecture, 1974.

• Hayek, F.A. “The Use of Knowledge in Society.” American Economic Review, vol. 35, no. 4, 1945, pp. 519–530.

• Buchanan, James M., and Tullock, Gordon. The Calculus of Consent. University of Michigan Press, 1962.

• Smith, Adam. The Wealth of Nations. 1776.

• Roberts, Russ. The Choice: A Fable of Free Trade and Protectionism. Prentice Hall, 2006.

• Goodhart, Charles A.E. “Problems of Monetary Management: The U.K. Experience.” Papers in Monetary Economics (Reserve Bank of Australia), vol. 1, 1975.

• Strathern, Marilyn. “Improving Ratings: Audit in the British University System.” European Review, vol. 5, no. 3, 1997, pp. 305–321.

• Hulett, Jeff. Making Choices, Making Money. PFR Books, 2024.

• Hulett, Jeff. “How Minimum Wage Laws Are Fast-Tracking Your Replacement by AI.” The Curiosity Vine, April 2024.

• Hulett, Jeff. “The Problem with Zoning Is Good Intentions.” The Curiosity Vine, May 2024.

• Hulett, Jeff. “The Simple Answer to the Affordable Housing Crisis: Stop Making Home Building Illegal.” The Curiosity Vine, August 22, 2024. Updated May 20, 2025.

• Hulett, Jeff. “Achieving College ROI: How to Evaluate Community College and Traditional College Pathways.” The Curiosity Vine, July 25, 2024.

• Hulett, Jeff. “The College Pricing Illusion: Why Higher Education Defies Economic Logic (and What We Can Do About It).” The Curiosity Vine, March 11, 2025.