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Quantifying Lottery Choice Complexity

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  • Benjamin Enke
  • Cassidy Shubatt

Abstract

We develop interpretable, quantitative indices of the objective and subjective complexity of lottery choice problems that can be computed for any standard dataset. These indices capture the predicted error rate in identifying the lottery with the highest expected value, where the predictions are computed as convex combinations of choice set features. The most important complexity feature in the indices is a measure of the excess dissimilarity of the cumulative distribution functions of the lotteries in the set. Using our complexity indices, we study behavioral responses to complexity out-of-sample across one million decisions in 11,000 unique experimental choice problems. Complexity makes choices substantially noisier, which can generate systematic biases in revealed preference measures such as spurious risk aversion. These effects are very large, to the degree that complexity explains a larger fraction of estimated choice errors than proximity to indifference. Accounting for complexity in structural estimations improves model fit substantially.

Suggested Citation

  • Benjamin Enke & Cassidy Shubatt, 2023. "Quantifying Lottery Choice Complexity," CESifo Working Paper Series 10644, CESifo.
    • Handle: RePEc:ces:ceswps:_10644
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp10644.pdf
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    References listed on IDEAS

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    Cited by:

    1. Benjamin Enke & Thomas Graeber & Ryan Oprea, 2023. "Complexity and Hyperbolic Discounting," NBER Working Papers 31047, National Bureau of Economic Research, Inc.
    2. Cassidy Shubatt & Jeffrey Yang, 2024. "Tradeoffs and Comparison Complexity," Papers 2401.17578, arXiv.org, revised Oct 2024.
    3. Jian-Qiao Zhu & Joshua C. Peterson & Benjamin Enke & Thomas L. Griffiths, 2024. "Capturing the Complexity of Human Strategic Decision-Making with Machine Learning," Papers 2408.07865, arXiv.org.
    4. Jian-Qiao Zhu & Joshua C. Peterson & Benjamin Enke & Thomas L. Griffiths, 2024. "Capturing the Complexity of Human Strategic Decision-Making with Machine Learning," CESifo Working Paper Series 11296, CESifo.

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    Keywords

    complexity; choice under risk; cognitive uncertainty; experiments;
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