Heterogeneity in preferences towards complexity

Peter Moffatt (), Stefania Sitzia () and Daniel Zizzo

Journal of Risk and Uncertainty, 2015, vol. 51, issue 2, 147-170

Abstract: We analyze lottery-choice data in a way that separately estimates the effects of risk aversion and complexity aversion. Complexity is represented by the number of different outcomes in the lottery. A finite mixture random effects model is estimated which assumes that a proportion of the population are complexity-neutral. We find that around 33% of the population are complexity-neutral, around 50% complexity-averse, and the remaining 17% are complexity-loving. Subjects who do react to complexity appear to have a bias towards complexity aversion at the start of the experiment, but complexity aversion reduces with experience, to the extent that the average subject is (almost) complexity-neutral by the end of the experiment. Complexity aversion is found to increase with age and to be higher for non-UK students than for UK students. We also find some evidence that, when evaluating complex lotteries, subjects perceive probabilities in accordance with Prospective Reference Theory. Copyright Springer Science+Business Media New York 2015

Keywords: Complexity aversion; Complexity preferences; Risk preferences; Mixture models; Learning; C91; D03; D81 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jrisku:v:51:y:2015:i:2:p:147-170

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DOI: 10.1007/s11166-015-9226-3

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