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The control of risk in financial decisions: illusion or reality?

Author

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  • Antonio D'Amato
  • Emiliano Mastrolia

Abstract

Based on a sample of Italian students enrolled in a Master's degree course in Economics, this work investigates the illusion of control in financial decisions under uncertainty. In four experimental rounds, empirical results provided evidence that is compatible with the illusion of control as the participants demonstrated a greater propensity to invest in a risky asset in the experimental rounds where they believed to have higher control of the events. However, participants have a low propensity to pay to control the game. These results are supported by an investigation of the locus of control. The results highlight that participants have a high perception that they can control a given situation. Consequently, the participants that express high internal control are more prone to allocate resources to a risky asset. Implications for theory and practice are also discussed.

Suggested Citation

  • Antonio D'Amato & Emiliano Mastrolia, 2023. "The control of risk in financial decisions: illusion or reality?," International Journal of Behavioural Accounting and Finance, Inderscience Enterprises Ltd, vol. 7(1), pages 41-54.
    • Handle: RePEc:ids:ijbeaf:v:7:y:2023:i:1:p:41-54
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