Economics Cognitive Biases Questions
The illusion of control refers to the tendency of individuals to overestimate their ability to control or influence outcomes that are actually determined by chance or external factors. In economic decision-making, this cognitive bias can lead individuals to believe that they have more control over the outcomes of their actions than they actually do. This can result in individuals taking excessive risks or making suboptimal decisions based on their false sense of control. The illusion of control is significant in economics as it can impact various aspects such as investment decisions, gambling behavior, and entrepreneurial activities. Understanding this bias is crucial for policymakers and economists to design effective interventions and policies that mitigate the negative consequences of the illusion of control on economic decision-making.