Eur. Phys. J. B 60, 369-384 (2007)
https://doi.org/10.1140/epjb/e2007-00353-6

”Illusion of control” in Time-Horizon Minority and Parrondo Games

¹ Laboratoire de Physique de la Matière Condensée, CNRS UMR6622 and Université des Sciences, Parc Valrose, 06108 Nice Cedex 2, France
² Department of Management, Technology and Economics, ETH Zurich, 8032 Zurich, Switzerland

Corresponding author: ^a dsornette@ethz.ch

Received: 4 April 2007
Revised: 30 July 2007
Published online: 22 December 2007

Abstract

Human beings like to believe they are in control of their destiny. This ubiquitous trait seems to increase motivation and persistence, and is probably evolutionarily adaptive [J.D. Taylor, S.E. Brown, Psych. Bull. 103, 193 (1988); A. Bandura, Self-efficacy: the exercise of control (WH Freeman, New York, 1997)]. But how good really is our ability to control? How successful is our track record in these areas? There is little understanding of when and under what circumstances we may over-estimate [E. Langer, J. Pers. Soc. Psych. 7, 185 (1975)] or even lose our ability to control and optimize outcomes, especially when they are the result of aggregations of individual optimization processes. Here, we demonstrate analytically using the theory of Markov Chains and by numerical simulations in two classes of games, the Time-Horizon Minority Game [M.L. Hart, P. Jefferies, N.F. Johnson, Phys. A 311, 275 (2002)] and the Parrondo Game [J.M.R. Parrondo, G.P. Harmer, D. Abbott, Phys. Rev. Lett. 85, 5226 (2000); J.M.R. Parrondo, How to cheat a bad mathematician (ISI, Italy, 1996)], that agents who optimize their strategy based on past information may actually perform worse than non-optimizing agents. In other words, low-entropy (more informative) strategies under-perform high-entropy (or random) strategies. This provides a precise definition of the “illusion of control” in certain set-ups a priori defined to emphasize the importance of optimization.