According to researchers, the invisibility cloak illusion stems from the belief that we are much more socially observant than the people around us. This means that, while we watch and wonder about other people as much as possible, we often think that people around us are less aware. This illusion occurs because, while we are fully aware of our impressions and speculations about other people, we have no idea what those other people are thinking unless they choose to share with us, something that rarely happens except in exceptional circumstances.

To better understand what is happening, it is important to consider the groundbreaking research by Amos Tversky and Daniel Kahneman on cognitive biases. When people make judgements about other people in social situations, they often depend on specific biases such as the availability heuristic, i.e., that we attach more significance to thoughts that come to mind easily. This is why we consider thoughts about other people as being more important than thoughts about inanimate objects. And so, as we look around us, we tend to focus our thoughts on the people we see and what they happen to be doing, which is why people-watching can be so addictive.

What adds to the sense that we are relatively invisible to others is that people tend to be as discreet as possible about their people-watching. Just because other people aren't sharing their observations with us, it's easy to pretend that they are not as observant as we are. Of course, people may share their people-watching observations with anyone they happen to be with but, for the most part, that only applies to something remarkable enough to comment on. For most of us, what we see tends to be extremely private and not to be shared with others.