MICHEL PIREU: The illusion of control relates both to delusions and insights
There are basic truisms that can help traders deal with the marketplace in a rational manner
The illusion of control is the tendency for people to overestimate their ability to control events; it occurs when we feel a sense of control over outcomes that we demonstrably don’t influence. Illusions of control can be especially problematic for traders. There is always the potential to overestimate the relationship between skill and performance. We find it hard to accept that our (good) performance is not always related to our skills. It is an attitude made worse by our capacity to fool ourselves, for instance in the belief that we have an edge and success is just around the corner, when in fact we don’t, and it isn’t. In an article published at Emotional Finance, professor of organisational behaviour at the Open University Mark Fenton-O’Creevy lists a number of things that make traders particularly vulnerable to illusions of control — they include "noise", stress and competition. As he points out: "Markets are in practice very ‘noisy’, there is a lot of trading going on that is...
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