#20 A Critique of ‘Heads I Win, Tails It's Chance: The Illusion of Control
as a Function of the Sequence of Outcomes in a
Purely Chance Task’
by Ellen J. Langer and Jane Roth (1975)
Samajeo K. Williams
093622815
Overview
The following is a critique of the article ‘Heads I Win, Tails It's Chance: The Illusion of
Control as a Function of the Sequence of Outcomes in a Purely Chance Task.’ The goal of
this study is to evaluate the strengths, weakness and limitations found within this
research and to bring it into the context of Financial Decision Making and possibly
extend the study.
The study researched the attributions of a classic pure chance scenario of flipping a coin.
The attributions were studied as a function of either a descending, ascending or random
sequence of outcomes and as a function of whether the subject performed the task or
was an observer of another subject performing the task.
The study was carried out on ninety male introductory psychology undergraduates of
Yale University. The results revealed that there was a clear statistical attribution of skill
in the descending sequence, in both the performer and the observer. There was no
significant difference between the ascending and random sequences in neither the
performer nor the observer. It also revealed that person rated themselves as more likely
to correctly predict the next 100 tosses as compared to someone else.
Critique
Does the study add anything new?
The paper sought to build on the foundation of several other studies. Several studies
researched and proved several separate topics and this study used their findings to test
a novel approach. The study revealed that even ‘sophisticated’ persons attribute skill to
pure chance situations. This ‘illusion of control’ is shown to be setup early in the
sequence outcomes.
Study design: Limitations & Biases
The design was well planned in most respects in that there were six conditions into
which a subject may be assigned. I found an issue with the methodology however in
that the subjects were allowed to see the result of the coin toss. While it is
understandable for the researchers to show the subjects the results of the toss to allay
any suspicions of inaccuracies in the records, it can do the opposite. If the subjects were
to memorize the amount he/she guess correctly and the numbers and/or the sequence
is different from what they remember it set up a clear issue with the reliability of the
subjects answers in the questionnaire. This does not appear to be controlled for in the
study. Another bias that has seemed to find its way into the experiment, possibly a
coincidence or plan, is that all of the subjects were male. As can be seen in various
articles and vast research on the topic, there sex differences in the brain (Kimura, D.
1992). While the results may be novel, this clear bias will have to be addressed. This
study, as are many done, used a small sample size. The researchers are extrapolating a
general theory from ninety participants all in the same locale. This small sample size
from a localised area and one discipline is a limitation that should be examined in future
studies. The entire study hinged on the assumption that all subjects had prior
knowledge that flipping a coin was an occurrence that was completely dictated by
chance. If the subjects do not have the knowledge that there is no skill is involved the
results are biased.
Relation To Financial Decision Making
As with the subjects in tossing the coin and guessing the face on which it will land;
traders seem to be prone to the illusion of control. As seen in the coin toss, early
success leads the attribution of skill. In the coin toss there was no more than four
correct guess in a row reported to the subject. Even this small number early on led the
subject to attribute this to their skill level. Even when their guesses were incorrect, it is
assumed that this was a chance occurrence while the correct answers are attributed to
skill once this mind-set was established. In the financial world this is the beginning of
overconfidence in trading. Odean T. (1998) found that ‘trading volume increases when
price takers, insiders, or market makers are overconfident’ and that ‘trading volume
increases when price takers, insiders, or market makers are overconfident.’ This
overconfidence, which in turn is a result of self-attribution to skill, led persons to believe
that they were responsible for whatever gains they incurred and the losses to a result of
chance.
Another effect of the attribution of skill to a chance scenario is the optimism effect. In
the coin toss, both persons who were successful early in an active or passive role
predicted a higher level of success in future coin tosses than those in the random and
ascending sequences. This further supports the theory that they believe there is some
aspect of skill involved. De Bont (1998) showed that there is a similar occurrence in
traders. Those with early success predict greater success in the future trading in stock
relative to those who did not have the same success as they again assume the success is
skill oriented rather than chance. While it may be fairly obvious to a person with prior
knowledge that a business filing for bankruptcy is a stock one should be selling; to play
the market on a daily basis of trying to find the next big stock is heavily reliant on
chance rather than skill. Daniel Kahneman et tal (1998) said, “The combination of
overconfidence and optimism is a potent brew, which causes people to overestimate
their knowledge, underestimate risks and exaggerate their ability to control events. It
also leaves them vulnerable to statistical surprises.”
The final effect mentioned in the study that holds relevance in the financial decision
making arena is that of self-perception. As seen in the study, persons view themselves
as more likely to achieve success than another person. This returns to the illusion of
control, persons with an active role believe they have a greater influence on the
outcome even in pure chance situations as shown in Daniel Kahneman et tal (1998). This
again shows unequal attribution of success to internal factors i.e. skill as opposed to
external factors i.e. chance for failures.
Future Experiments
As outlined in the study design section there were some limitations and biases I feel
should be addressed moving forward. The first issue I would address is to not allow the
subjects to see the result of the toss. This should not affect the reliability of the results
as the questionnaire is administered at the end of the trial and not after each toss. The
sequence given will not generally match up with the actual results so the perceptions
post-trial should be the same and there will be no discrepancies between the results
and memory. The next issues to address all relate to the subjects. There needs to be a
more diverse subject pool in that:
1. There needs to be a balance between male and female that was absent in the
original experiment.
2. There needs to be a more diverse population in the sense that possibly
expanding the subject pool outside of Yale University students, or at least
outside of one discipline.
3. There needs to be an overall expansion of the sample size.
The final issue to address is the matter of the assumption that all persons tested know
that flipping a coin is a pure chance experiment. This assumption is the basis for the all
the conclusions. This was not tested nor was this knowledge given to the subjects. For
future experiments the inclusion of the statement, ‘we will use a fair, un-tampered coin,
i.e. there is just as much chance of head as tails, for this experiment.’ This phrase will
ensure that all subjects are aware that there is no skill involved.
A possible extension for future experiments would be to have the condition in which the
subject is allowed to toss the coin himself using the original methodology of the study
and simply making it a 3x3 factorial design. This added involvement in the task will
further test the theory that a person’s involvement affects how much one attributes skill
to a pure chance task.
Conclusion
In life we all want to imagine we have control over events that occur around us. It is this
desire to exert control over our environment that makes us so susceptible to the illusion
of control. Ellen J. Langer and Jane Roth (1975) have shown that even what we assume
to be ‘sophisticated’ persons can be victim to the illusion of control. As we move
forward let us remember that although we want to believe all success is from within and
failures are without; this is not the actuality of live. With this knowledge we can be more
self-monitoring and less susceptible to overconfidence which may possibly release us
from this illusion of control.
Bibliography
De Bondt, W.F.M. (1998) ‘A portrait of the individual investor’ European Economic
Review, 42(3-5) 831-844
Kahneman, Daniel et tal (1998) ‘Aspects of Investor Psychology’ Journal of Portfolio
Management, 24(4) 52-65
Kimura, Doreen (1992) ‘Sex Differences in the Brain.’ Scientific American, 267(3) 118-125
Langer, Ellen J. and Jane Roth (1975) ‘Heads I Win, Tails It's Chance: The Illusion of
Control as a Function of the Sequence of Outcomes in a Purely Chance Task.’ Journal of
Personality and Social Psychology, 32(6) (December):951-955
Odean, T. (1998) ‘Volume, Volatility, Price, and Profit When All Traders Are above
Average’ The Journal of Finance, 53(6) 1887-1934