Illusion of control in farmers’ investment and financing decisions

Abstract

Purpose: People’s tendency to overestimate their ability to control random events, known as illusion of control, can affect financial decisions under uncertainty. This study developed an artifactual field experiment on illusion of control for a farm machinery investment. Design/methodology/approach: In an experiment with two treatments, the individual farmer was either given or not given a sense of control over a random outcome. After each decision, the authors elicited perceived control, and a questionnaire collected additional indirect measures of illusion of control from 78 German farmers and 10 farm advisors. Findings: The results did not support preregistered hypotheses of the presence of illusion of control. This null result was robust over multiple outcomes and model specifications. The findings demonstrate that cognitive biases may be small and difficult to replicate. Research limitations/implications: The sample is not representative for the German farming population. The authors discuss why the estimated treatment effect may represent a lower bound of the true effect. Originality/value: Illusion of control is well-studied in laboratory settings, but little is known about the extent to which farmers’ behavior is influenced by illusion of control.