Influence of personality on the occurrence of illusion of control and ambiguity aversion.

• Author: Zanetta, Alexandre
• Position: Report

1. INTRODUCTION

   In the process of making decision, individuals can distort the interpretation about a particular subject and create wrong perceptions about the events analyzed (Taylor and brown, 1988). Psychological aspects influence the decisions causing it to deviate from rationality. This deviation is called cognitive error.

   According to Charness and Gneezy (2010), the cognitive biases can change the balance of the market, once it is able to make prices deviate from fundamental value, in a systematic way, creating opportunities for the investors. A classic example to demonstrate the inconsistency of choices for rationality is the paradox of Ellsberg (1961). According to the author, people prefer situations with known probabilities instead of situations where the probability distribution is completely ignored. This illusion is called ambiguity aversion.

   Another cognitive error known as illusion of control was discovered by Thaler (1992). He found that individuals believe that can influence random results. According to Langer and Roth (1975), when individuals are faced with situations that involve probability they overestimate their power to influence the situation, changing the expected result.

   The ambiguity aversion the individual prefers events with a known probability, which is interpreted as an increased of the information base about the expected event (Fox and Tversky, 1995). This association may explain the increase of sense of control by agents.

   In especial, we are interested in testing if there is a relationship between the occurrence of two types of cognitive deviates in emerging markets; the illusion of control and ambiguity aversion. Then we will confront it with individual aspects to explore its determinants. The measurement of human individuality involves the identification of personality, which is formed from the temporal behavior during the process of individual experience associated with our social interactions. Each individual has a set of traces that shape their personality (Allport, 1961).

   According to MacCrae and Costa (1989), the Model of the Five Great Factors is able to identify, to group and to describe the psychological dimensions that compose the personality of human beings who were denominated of emotional stability, extroversion, consciousness, openness to experience and level of socialization.

   Conscious people valorize a high level of responsibility, self-discipline, honesty, care and organization. The emotional stability is a source associated with neurotic dimensions. Individuals opened to experiences are individualistic and demonstrate interests for ideas out of common. According to Guilford (1975), extroverted individuals valorize the company of others. And for McAdams(1992), people with higher level of socialization valorize the good relationships. The...