Effects of Involvement and Timing of Judgment on Illusion of Control and Loss Aversion

Abstract

Active involvement and prediction of outcomes have been found in previous studies to generate an illusion of control that engenders overconfidence of success and increased risktaking behavior. This study investigates the relationship between levels of involvement and temporal orientations of judgment as causes for illusory control in addition to testing the mediating effect of illusory control on loss aversion, which modulates risk-taking behavior. Participants evaluated acceptability of equiprobable gambles by reporting confidence levels and minimum gain-to-loss ratios. Results indicated an interdependent crossover interaction in which active involvement in predicting outcomes increased confidence and decreased loss aversion while active involvement in postdicting outcomes decreased confidence and increased loss aversion. In addition, illusion of control did not mediate effects of involvement and timing of judgment on loss aversion. Avoidance to regret is proposed as an explanation for the crossover interaction and the relationship between illusory control and loss aversion is discussed.