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Complexity and Biases

  • Kalaycı, Kenan
  • Serra-Garcia, Marta

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.

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File URL: https://epub.ub.uni-muenchen.de/13035/1/Complexity_and_Biases.pdf
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Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 13035.

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Date of creation: May 2012
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Handle: RePEc:lmu:muenec:13035
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