Heterogeneity in Preferences towards Complexity

Moffatt, Peter G., Sitzia, Stefania and Zizzo, Daniel John (2015) Heterogeneity in Preferences towards Complexity. Journal of Risk and Uncertainty, 51 (2). pp. 147-170. ISSN 1573-0476

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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.

Item Type: Article
Uncontrolled Keywords: complexity aversion,complexity preferences,risk preferences,mixture models,learning
Faculty \ School: Faculty of Social Sciences > School of Economics
Depositing User: Pure Connector
Date Deposited: 01 Dec 2015 07:30
Last Modified: 13 Nov 2020 00:46
URI: https://ueaeprints.uea.ac.uk/id/eprint/55543
DOI: 10.1007/s11166-015-9226-3

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