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Decisions under Risk Are Decisions under Complexity

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  • 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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    Cited by:

    1. Holden, Stein T. & Tione, Sarah & Tilahun, Mesfin & Katengeza, Samson, 2025. "Elicitation Bias in Multiple Price Lists: A Field Experiment," CLTS Working Papers 3/25, Norwegian University of Life Sciences, Centre for Land Tenure Studies.
    2. 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).
    3. Egor Bronnikov & Elias Tsakas, 2025. "A robust measure of complexity," Papers 2501.09139, arXiv.org.
    4. Yiting Chen & Songfa Zhong, 2025. "People Are More Moral in Uncertain Environments," Econometrica, Econometric Society, vol. 93(2), pages 439-462, March.
    5. 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.
    6. J Anthony Cookson & Emily Gallagher & Philip Mulder, 2025. "Coverage Neglect in Homeowner's Insurance," Working Papers 25-09, Federal Reserve Bank of Philadelphia.
    7. 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.
    8. 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.

    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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