Preference for Simplicity

48 Pages Posted: 18 Oct 2018 Last revised: 22 Jun 2020

See all articles by Indira Puri

Indira Puri

Massachusetts Institute of Technology (MIT), Department of Economics, Students

Date Written: September 22, 2018

Abstract

This paper introduces and axiomatizes representations in which the agent assesses a lottery less favorably if it contains more outcomes. These representations, which we term simplicity theory, are motivated by experimental evidence. They capture as special cases expected utility, the certainty effect, and a range of laboratory and empirical phenomena. We compare simplicity theory to existing theories including expected utility theory and prospect theory. We provide parametric examples of simplicity theory, and relate the theory to applications including risk aversion, frequency with which people choose dominated options, cognitive psychology research, and household financial behavior.

Keywords: preferences under risk, experimental evidence, expected utility, complexity aversion, lottery support, risk aversion, cognitive psychology

JEL Classification: D01, D81, D90

Suggested Citation

Puri, Indira, Preference for Simplicity (September 22, 2018). Available at SSRN: https://ssrn.com/abstract=3253494 or http://dx.doi.org/10.2139/ssrn.3253494

Indira Puri (Contact Author)

Massachusetts Institute of Technology (MIT), Department of Economics, Students ( email )

Cambridge, MA
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
834
Abstract Views
2,894
Rank
44,507
PlumX Metrics