Preference towards control in risk taking: Control, no control, or randomize?

Abstract

This paper experimentally investigates preference towards different methods of control in risk taking. Participants are asked to choose between different ways for choosing which numbers to bet on for a gamble. They can choose the numbers themselves (control), let the experimenter choose (no control), or randomize. It is found that in addition to the more conventional preference for control, some participants prefer not to control, or randomization. These preferences are robust as participants are willing to pay a small amount of money to implement their preferred method. Most of the participants believe that the winning probability under different methods is the same. Thus, their preferences are not driven by bias in probability belief such as those induced by illusion of control. Participants tend to invest less in the risky gamble when they are not offered their preferred method.

Click‘n’Roll: No Evidence of Illusion of Control

“…The reason why we directly ask for the perceived probability of winning is that involvement in the resolution of uncertainty has been already shown to have little to no effect on choices in other economics experiments (Charness and Gneezy, 2010;Li, 2011).…”

“…This minimal manipulation has been around at least since Dunn and Wilson (1990) and has been commonly used in experimental economics (Charness and Gneezy, 2010;Li, 2011). The subjects go through a standard BRET in all details identical to the baseline treatment, but they roll individually and privately the dice to determine the position of the bomb.…”

“…Poon (2011) also finds that most of the subjects display indifference in a multiple price list task aimed at eliciting their willingness to pay up to one dollar to exercise control in a lottery. Li (2011) finds instead that subjects display a wide range of preferences in terms of control. Subjects may prefer to keep control over the resolution of uncertainty, as well as display preferences for no control (paying to be released from having to choose the numbers), and preferences for randomization (paying to let a coin toss decide who will pick the numbers).…”

“…Subjects may prefer to keep control over the resolution of uncertainty, as well as display preferences for no control (paying to be released from having to choose the numbers), and preferences for randomization (paying to let a coin toss decide who will pick the numbers). Li (2011) attributes his results to preferences for different sources of uncertainty (Chew and Sagi, 2008;Tversky and Wakker, 1995) rather than to illusion of control. 2 One possible explanation for this striking difference in findings is that the literature in experimental economics has been restricted to one type only of illusion of control, obtained by giving subjects (illusory) control over the resolution of uncertainty.…”

Spillover Effects of Loss of Control on Risky Decision-Making

“…Although the psychology literature found robust effects of illusion of control on risky decision-making [ 27 ], the economic literature found little or no evidence of illusion of control (e.g., [ 28 , 29 ]). As argued by Filippin and Crosetto [ 30 ], there are two possible reasons for the dissonance in findings.…”