Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Illusion of control in farmers’ investment and financing decisions

Illusion of control in farmers’ investment and financing decisions 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/approachIn 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.FindingsThe 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/implicationsThe 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/valueIllusion 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Agricultural Finance Review Emerald Publishing

Illusion of control in farmers’ investment and financing decisions

Illusion of control in farmers’ investment and financing decisions

Agricultural Finance Review , Volume 82 (4): 15 – Jul 7, 2022

Abstract

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/approachIn 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.FindingsThe 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/implicationsThe 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/valueIllusion 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.

Loading next page...
 
/lp/emerald-publishing/illusion-of-control-in-farmers-investment-and-financing-decisions-eFzyulU1T7
Publisher
Emerald Publishing
Copyright
© Katarina Labajova, Julia Höhler, Carl-Johan Lagerkvist, Jörg Müller and Jens Rommel
ISSN
0002-1466
DOI
10.1108/afr-09-2020-0140
Publisher site
See Article on Publisher Site

Abstract

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/approachIn 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.FindingsThe 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/implicationsThe 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/valueIllusion 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.

Journal

Agricultural Finance ReviewEmerald Publishing

Published: Jul 7, 2022

Keywords: Risk and uncertainty; Behavioral finance; Superstition; Framed field experiment; Artifactual field experiment

References