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Complexity and biases

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  • Kenan Kalaycı
  • Marta Serra-Garcia

Abstract

We examine experimentally how complexity affects decision-making, when individuals choose among different products with varying benefits and costs. We find that complexity in costs leads to choosing a high-benefit product, with high costs and overall lower payoffs. In contrast, when complexity is in the benefits of the product, we cannot reject the hypothesis of random mistakes. We also examine the role of heterogeneous complexity. We find that individuals still (mistakenly) choose the high-benefit but costly product, even if cheaper and simple products are available. Our results suggest that salience is a main driver of choices under different forms of complexity. Copyright Economic Science Association 2016

Suggested Citation

  • Kenan Kalaycı & Marta Serra-Garcia, 2016. "Complexity and biases," Experimental Economics, Springer;Economic Science Association, vol. 19(1), pages 31-50, March.
    • Handle: RePEc:kap:expeco:v:19:y:2016:i:1:p:31-50
    DOI: 10.1007/s10683-015-9434-3
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    Cited by:

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    2. Chioveanu, Ioana & Zhou, Jidong, 2009. "Price Competition and Consumer Confusion," MPRA Paper 17340, University Library of Munich, Germany.
    3. Dertwinkel-Kalt, Markus & Köster, Mats & Sutter, Matthias, 2020. "To buy or not to buy? Price salience in an online shopping field experiment," European Economic Review, Elsevier, vol. 130(C).
    4. François Desmoulins-Lebeault & Luc Meunier, 2018. "Moment Risks: Investment for Self and for a Firm," Decision Analysis, INFORMS, vol. 15(4), pages 242-266, December.
    5. Ortmann, Andreas & Ryvkin, Dmitry & Wilkening, Tom & Zhang, Jingjing, 2023. "Defaults and cognitive effort," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 1-19.
    6. Sandro Ambuehl & B. Douglas Bernheim & Annamaria Lusardi, 2022. "Evaluating Deliberative Competence: A Simple Method with an Application to Financial Choice," American Economic Review, American Economic Association, vol. 112(11), pages 3584-3626, November.
    7. Ernst Fehr & Keyu Wu, 2021. "Obfuscation in competitive markets," ECON - Working Papers 391, Department of Economics - University of Zurich, revised Feb 2023.
    8. Naomi E. Feldman & Bradley J. Ruffle, 2012. "The Impact Of Tax Exclusive And Inclusive Prices On Demand," Working Papers 1207, Ben-Gurion University of the Negev, Department of Economics.
    9. Johannes Abeler & Simon Jäger, 2013. "Complex Tax Incentives - An Experimental Investigation," CESifo Working Paper Series 4231, CESifo.
    10. Gu, Yiquan & Wenzel, Tobias, 2015. "Putting on a tight leash and levelling playing field: An experiment in strategic obfuscation and consumer protection," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 120-128.
    11. Huck, Steffen & Zhou, Jidong, 2011. "Consumer behavioural biases in competition: A survey," MPRA Paper 31794, University Library of Munich, Germany.
    12. Kai Duttle & Keigo Inukai, 2015. "Complexity Aversion: Influences of Cognitive Abilities, Culture and System of Thought," Economics Bulletin, AccessEcon, vol. 35(2), pages 846-855.
    13. Leandro Carvalho & Dan Silverman, 2019. "Complexity and Sophistication," NBER Working Papers 26036, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Complexity; Mistakes; Credit Choice; Experiment; Salience; C91; D03; D14; G02;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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