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On Preference for Simplicity and Probability Weighting

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  • Mononen, Lasse

    (Center for Mathematical Economics, Bielefeld University)

Abstract

Complexity aversion is well-documented in choice under risk. One of the main behavioral effects of complexity aversion is the event-splitting effect. This captures the change in the value of a lottery from splitting a prize of the lottery into two separate prizes by halving the probability. We relax the independence axiom for the event-splitting effect. Under continuity assumptions, this characterizes a decision-maker that is either 1) an expected utility maximizer with an entropic cost of complexity or 2) a powerweighted expected utility maximizer that weights probabilities by a power function. Additionally, our model offers preference foundations for the logit random choice.

Suggested Citation

  • Mononen, Lasse, 2025. "On Preference for Simplicity and Probability Weighting," Center for Mathematical Economics Working Papers 748, Center for Mathematical Economics, Bielefeld University.
    • Handle: RePEc:bie:wpaper:748
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