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Decisions under Risk Are Decisions under Complexity

Author

Listed:
  • Ryan Oprea

Abstract

We provide evidence that classic lottery anomalies like probability weighting and loss aversion are not special phenomena of risk. They also arise (and often with equal strength) when subjects evaluate deterministic, positive monetary payments that have been disaggregated to resemble lotteries. Thus, we find, e.g., apparent probability weighting in settings without probabilities and loss aversion in settings without scope for loss. Across subjects, anomalies in these deterministic tasks strongly predict the same anomalies in lotteries. These findings suggest that much of the behavior motivating our most important behavioral theories of risk derive from complexity-driven mistakes rather than true risk preferences.

Suggested Citation

  • Ryan Oprea, 2024. "Decisions under Risk Are Decisions under Complexity," American Economic Review, American Economic Association, vol. 114(12), pages 3789-3811, December.
    • Handle: RePEc:aea:aecrev:v:114:y:2024:i:12:p:3789-3811
    DOI: 10.1257/aer.20221227
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    Citations

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    Cited by:

    1. Tommaso Bondi & Daniel Csaba & Evan Friedman & Salvatore Nunnari, 2025. "Range Effects in Economic Choice: The Role of Complexity," CESifo Working Paper Series 12175, CESifo.
    2. Holden, Stein T. & Tione, Sarah & Tilahun, Mesfin & Katengeza, Samson, 2025. "Elicitation bias in Multiple Price Lists: A field experiment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 119(C).
    3. Beknazar-Yuzbashev, George & Ichiba, Sota & Stalinski, Mateusz, 2025. "To the Depths of the Sunk Cost: Experiments Revisiting the Elusive Effect," CAGE Online Working Paper Series 746, Competitive Advantage in the Global Economy (CAGE).
    4. Bryan P. Cutsinger & Alexander William Salter, 2026. "Putting economics back in Humanomics," Public Choice, Springer, vol. 206(3), pages 309-326, March.
    5. Hurmeranta, Risto & Lyytikäinen, Teemu, 2025. "Nominal Loss Aversion in the Housing Market and Household Mobility," Working Papers 178, VATT Institute for Economic Research.
    6. Egor Bronnikov & Elias Tsakas, 2025. "A robust measure of complexity," Papers 2501.09139, arXiv.org.
    7. Cheung, Stephen L. & Nadan, Vindesh, 2025. "Anticipatory effects of competition on confidence and risk preference," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 116(C).
    8. Benjamin Moll, 2025. "The Trouble with Rational Expectations in Heterogeneous Agent Models: A Challenge for Macroeconomics," Papers 2508.20571, arXiv.org.
    9. Fenfang Li & Xun Xu & Kam Yu, 2025. "Welfare Effects of Price Changes in Government Lotteries," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 53(4), pages 303-321, December.
    10. Yiting Chen & Songfa Zhong, 2025. "People Are More Moral in Uncertain Environments," Econometrica, Econometric Society, vol. 93(2), pages 439-462, March.
    11. Beknazar-Yuzbashev, George & Ichiba, Sota & Stalinski, Mateusz, 2025. "To the Depths of the Sunk Cost : Experiments Revisiting the Elusive Effect," The Warwick Economics Research Paper Series (TWERPS) 1544, University of Warwick, Department of Economics.
    12. Chegere, Martin J. & Falco, Paolo & Nieddu, Marco G. & Pandolfi, Lorenzo & Stein, Mattea, 2025. "The Magic of the Game: Experimental Evidence on Sports Betting Behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 240(C).
    13. J Anthony Cookson & Emily Gallagher & Philip Mulder, 2025. "Coverage Neglect in Homeowner's Insurance," Working Papers 25-09, Federal Reserve Bank of Philadelphia.
    14. Alex Gershkov & Benny Moldovanu & Philipp Strack & Mengxi Zhang, 2025. "Optimal Security Design for Risk-Averse Investors," American Economic Review, American Economic Association, vol. 115(6), pages 2050-2092, June.
    15. Mingshi Chen & Tracy Xiao Liu & You Shan & Shu Wang & Songfa Zhong & Yanju Zhou, 2025. "How General Are Measures of Choice Consistency? Evidence from Experimental and Scanner Data," Papers 2505.05275, arXiv.org, revised Sep 2025.
    16. Moritz Loewenfeld & Jiakun Zheng, 2026. "Uncovering Correlation Sensitivity in Decision Making Under Risk," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 67(2), pages 513-532, May.
    17. Avner Seror, 2026. "How Many Mechanisms? Measuring Parsimony in Risky Choice," Papers 2601.02964, arXiv.org, revised May 2026.
    18. Jiang, Ke & Zhang, Xinxin & Leng, Mengjia & Zhang, Wulin & Wang, Feng, 2025. "Balancing incentives and sanctions: A prospect theory-based tripartite game on carbon tax dynamics," Energy, Elsevier, vol. 340(C).

    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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