Group 07 Chapter 10 Illusion Control of Bias

Group-07
ILLUSION
OF CONTROL BIAS
Group Members
No. Name ID
01 Md. Mahabub Miah B 150203019
02 Md. Nur Hossain B 150203035
03 Shimli Akter B 150203036
04 Sumaia Akter Jaly B 150203049
05 Anisur Rahman B 150203056

What is it?
The illusion of control bias is the tendency of people to believe that they have
more control over things than they really do. This leads us to overestimate our
odds of succeeding or getting a positive outcome, and to invent explanations
linking our behavior to some result.
Why it happens
People are prone to this bias because they have a psychological need to feel like
they’re in control, as well as an overall bias towards optimism. Our automatic
thinking processes also tend to see causality between events, even if they’re not
actually connected.
Examples
You can choose an apple which tastes delicious. You assume that you are very
skilled at choosing apples.
People are willing to pay more money for a lottery ticket if they get to choose
the numbers themselves than if the numbers are chosen by a computer random.
Managers often over-estimate the extent of their control over the applications
of their companies.
Practical Application
Andrea Breinholt and Lynnette Dalrymple two researchers at Westminster College
tried to research on this bias. Their study entitled “The Illusion of Control: What’s
Luck Got to Do with It?”
Two hundred eighty-one undergraduate students participated in the study and
they rated themselves based on
 Desirability of Control Scale
 Belief in Luck Scale
Students participated in an online simulated gambling task. They randomly
assigned those students into two parts: 1. high-involvement condition; 2. low
involvement condition
Practical Application(Cont.)
All participants played 14 hands of “Red & Black” using four cards. Each card was
presented facedown on the screen and students were asked to wager as to whether a
chosen card matched a selected target color. Each player began with 50 chips. In each
hand, participants could wager between zero and five chips.
The high-involvement condition students were allowed to “shuffle” and “deal” the
cards themselves. In the low-involvement condition, the computer shuffled and dealt
the cards.
Result of the study
The high-involvement condition participant’s perception that they were controlling
the game. But Actually the computer randomly selected the card on which the
outcome of each hand would rest.
Problems with Illusion of Control Bias
The biggest problem with the illusion of contact is that it leads to frustration
and sometime even to anger.
Blaming themselves for outcomes that aren’t their fault.
Designer may blame themselves for a product that doesn’t become a market
leader.
Investors may blame themselves for poor return.
Problems with Illusion of Control Bias
(Cont.)
Over-confidence in outcome
It also leads us to pin our hopes on superstition.
Risk of making bad decision. So this can contribute to a number of harmful
behaviors.
How illusion of control affect in
business
Control is one of our greatest illusion as human & business leaders .
Business leaders & managers have influence on business success only when
managers or business owner is good at managing system and process.
Even the best leaders make mistakes, judge issue incorrectly or overestimate
their ability to control things.
Mistakes are made because managers think they are pioneer in business &
people rely on them.
How illusion of control affect in
Business (Cont.)
Prior success build confidence, sometimes over confidence and fall victim to
illusion of control.
Managers overestimate their abilities to influence an outcome but actually
they are not.
Due to overconfidence managers underestimate effort, cost and resource
requirement that leads to poor outcome.
Sometimes it leads us to overestimation of profits, market share or other
outcome indicators.
Illusion of Control Bias Test
Question 1: When returns to your portfolio increase, what do you mainly
attribute this turn of events?
a. The control that I’ve exercised over the outcome of my investments.
b. Some combination of investment control and random chance.
c. Completely random chance.
Result: : People who feel that they are able to exercise control over their
investments are likely to be susceptible to illusion of control bias.
Illusion of Control Bias Test(Cont.)
Question 2: When you are playing cards, are you usually most optimistic with
respect to the outcome of a hand that you’ve dealt yourself?
a. A better outcome will occur when I am controlling the dealing of the cards.
b. It makes no difference to me who deals the cards.
Result: . People who perceive that they have more control over the outcome of
a hand of cards when dealing the cards themselves are likely to be susceptible to
illusion of control bias.
Illusion of Control Bias Test(Cont.)
Question 3: When you purchase a lottery ticket, do you feel more encouraged,
regarding your odds of winning, if you choose the number yourself rather than
using a computer-generated number?
a. I’m more likely to win if I control the numbers picked.
b. It makes no difference to me how the numbers are chosen.
Result: Respondents selecting “a,” ” indicating that they are likely to be
susceptible to illusion of control bias.
How can this bias impact investors
Investors with this bias tend to significantly over-trade, ultimately ending up
with poorer returns.
Investors hold concentrated positions because they tend to hold companies
which they feel they can significantly influence or control.
Illusion of control can lead investors to maintain under-diversified portfolios
and this lack of diversification hurts the investors portfolio return.
How can this bias impact investors
(Cont.)
This bias mostly results in an overconfident investors.
They attribute stock price movement to their decision.
Illusion of control bias can cause investors to use limit orders and other such
techniques in order to experience a false sense of control over their investment.
In fact, the use of these mechanisms can often lead to an overlooked
opportunities and unnecessary purchase based on occurrence of an arbitrary
price.
How to overcome illusion of control
bias
Investors need to acknowledge that investment is a probability game, and their
decisions to buy or sell do not affect an investment’s performance.
Investors must monitor and analyze their investment motives.
Seek contrary logic to screen your view point.
Develope strategies.
Evaluate and refine solution.

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Group-07

01 Md. Mahabub Miah B 150203019

02 Md. Nur Hossain B 150203035

03 Shimli Akter B 150203036

04 Sumaia Akter Jaly B 150203049

05 Anisur Rahman B 150203056

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