The tragedy of complexity

Martin Oehmke and Adam Zawadowski

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Complexity can create value. At the same time, understanding more complex goods requires more of an agent’s attention. We show that equilibrium complexity is generally inefficient when agents face competing demands on their limited attention. Because attention allocation is hump-shaped in complexity, equilibrium complexity is distorted toward intermediate levels: well-understood goods are inefficiently complex, whereas less well-understood goods are oversimplified. We apply our model to financial institutions facing regulatory bodies and CEOs interacting with corporate divisions.

Keywords: complexity; limited attention; attention externality; financial regulation; communication in firms (search for similar items in EconPapers)
JEL-codes: F3 G3 J50 (search for similar items in EconPapers)
Date: 2026-06-01
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Published in Management Science, 1, June, 2026. ISSN: 0025-1909

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