Salient Cues and Complexity

Markus Dertwinkel-Kalt () and Mats Köster ()
Additional contact information
Markus Dertwinkel-Kalt: University of Münster, 48149 Münster, Germany; Max Planck Institute for Research on Collective Goods, 53113 Bonn, Germany
Mats Köster: Central European University, 1100 Vienna, Austria

Management Science, 2025, vol. 71, issue 1, 428-469

Abstract: Important decisions are often complex, and existing evidence suggests that complexity can affect economic behavior. It is an open question, however, exactly when and how complexity matters. We hypothesize that salient cues—standing out in the choice context—mitigate the effect of complexity on choices. We theoretically develop and experimentally test this hypothesis in the context of portfolio selection. We find that, in both simple and complex problems, subjects seek highly right-skewed portfolios, which have an extreme and salient upside, and avoid highly left-skewed portfolios with an extreme and salient downside. Complexity does affect, however, choices among symmetric portfolios, which have neither a salient upside nor downside. Absent a salient cue, subjects diversify naively. Evidence on response times and memory supports our salience-based explanation.

Keywords: salience; complexity; skewness; portfolio selection; naive diversification (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2022.00652 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:71:y:2025:i:1:p:428-469

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().