The Complexity Effects on Choice with Uncertainty — Experimental Evidence

Doron Sonsino (), Uri Benzion and Galit Mador
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Uri Benzion: Israel Institute of Technology, Haifa
Galit Mador: Israel Institute of Technology, Haifa

Economic Journal, 2002, vol. 112, issue 482, 936-965

Abstract: We present experimental evidence suggesting that human subjects dislike complexity in choice with uncertainty. Our results suggest that the probability of choosing a given alternative decreases with the relative complexity of that alternative. Complexity increases the noise in the choice process and the chances that the (otherwise) inferior alternative will be selected. Our results contradict the predictions of (discounted) expected utility theory and intuitively appealing axioms like "stochastic dominance" and "convexity". These "complexity effects" may lead to inefficient portfolio selection. The perceived complexity of a given lottery may depend on editing procedures and be subjected to framing effects. Copyright Royal Economic Society 2002

Date: 2002
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