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Are you trapped in the illusion of control?

Henil Shah
/ Categories: Mutual Fund Unlocked
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Are you trapped in the illusion of control?

We come across many people in life who feel that what they believe is going to happen exactly the way they think or at least near to it and if by fluke it turns out to be true then they take much pride in flaunting that and in turn gets trapped into the illusion of control.
 
So, what exactly does the illusion of control mean? The illusion of control is a tendency where a person believes that he/she has complete control or at least influence over the outcome of the uncontrollable events. For instance, some people often judge their subjective probability of success to be higher than the actual, i.e. objective probability. The illusion of control is a bias that leads to overconfidence.
 
Let us take an example to understand it better. In a study wherein people were given choice to pay for a lottery in which they could choose their own numbers or they will be randomly allocated one. People were more inclined towards paying more if they were given choice to choose their own number. This shows that, though the objective probabilities remained the same, the subjective probabilities were biased due to the illusion of control.
 
Having the illusion of control bias could lead you to churn your investments more, which might lead to improper portfolio diversification. This means that you tend to put money in the things you think you have maximum control, for instance, your own venture. Having this bias will also reduce your focus.

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