TradeSmith: An Exercise to Demonstrate the Illusion of Control in Decision Making

Abstract

ABSTRACT Resource allocation decisions are a fundamental class of problems common throughout a business and therefore are found throughout business school curricula. Entrepreneurs must allocate capital, financiers must allocation cash, and production managers must create the best mix of multiple‐use resources. Within this context, a business school's curriculum, instructional materials, and learning processes must consider the implications of individual decision making. Our traditional instructional content and delivery methods may effectively teach how to set up a decision “problem” and how to obtain an optimal answer. Yet, we may not be teaching a key underlying factor: that entrepreneurs, managers, and future leaders appear to have implicit cognitive biases, which discount information and skew individual decision making. The results of this study demonstrate that a phenomenon known as the “illusion of control” presents a fundamental challenge to the efficacy of formalized educational programs on decision making. TradeSmith was designed as a problem‐based learning exercise to elicit for the illusion of control in a basic, resource allocation, decision environment. The subjects in this study demonstrate a decision‐making pattern consistent with the “illusion of control” phenomenon. Finally, by revealing individuals' implicit design‐making paradigms, TradeSmith helps them experience key issues for managerial decision making.

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