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Illusion of Control: Psychological Characteristics as Moderators in Financial Decision Making

Author

Listed:
  • Schütze, Tobias
  • Schmidt, Ulrich
  • Spitzer, Carsten
  • Wichardt, Philipp C.

Abstract

Financial decision making requires a sound handling of chance events. However, various studies have suggested that people are prone to illusion of control, i.e., the belief that prospects of a chancy event are better if they are involved in the randomisation process. This paper reports results from an experiment (N=420) suggesting that psychological characteristics moderate risk-taking behaviour under such circumstances. For example, we find that subjects high in sensation seeking buy more tickets of a risky lottery if they determine the winning numbers themselves and the random event lies in the future. The findings suggest that “illusion of control” effects are at least partly driven by underlying (idiosyncratic) emotions/preferences rather than an actual belief in control. Regarding applications, the results emphasise the importance of individual characteristics for the behaviour of decision makers in a financial context.

Suggested Citation

  • Schütze, Tobias & Schmidt, Ulrich & Spitzer, Carsten & Wichardt, Philipp C., 2024. "Illusion of Control: Psychological Characteristics as Moderators in Financial Decision Making," Open Access Publications from Kiel Institute for the World Economy 300919, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkie:300919
    DOI: 10.3390/jrfm17020065
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    References listed on IDEAS

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    1. Aamir Shehzad & Shahzadah Fahed Qureshi & Muhammad Zubair Saeed & Shahid Ali, 2023. "The impact of financial risk attitude on objective-oriented investment behavior," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 1-17, March.
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      Keywords

      illusion of control; financial decision making; investment decisions; risk;
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