What is the illusion of control and how does it affect economic decision-making?

Economics Cognitive Biases Questions



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What is the illusion of control and how does it affect economic decision-making?

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 bias can lead individuals to believe that they have more control over the outcomes of their investments or financial decisions than they actually do. As a result, they may take on excessive risks or make suboptimal choices based on their inflated sense of control. This bias can have negative consequences, such as financial losses or missed opportunities, as individuals fail to accurately assess the level of control they have over economic outcomes.