The Good, the Bad and the Complex: Product Design with Imperfect Information

Posted: 12 Dec 2018 Last revised: 23 Mar 2019

See all articles by Vladimir Asriyan

Vladimir Asriyan

CREI; Universitat Pompeu Fabra; Barcelona GSE; Centre for Economic Policy Research (CEPR)

Dana Foarta

Stanford Graduate School of Business

Victoria Vanasco

CREi and UPF; Barcelona GSE

Date Written: September 29, 2018

Abstract

This paper explores the incentives of product designers to complexify products, and the resulting implications for overall product quality. In our model, a consumer can accept or reject a product proposed by a designer, who can affect the quality and the complexity of the product. While the product's quality determines the direct benefits of the product to the consumer, the product's complexity affects the information a Bayesian consumer can extract about the product's quality. Examples include policymakers who propose policies for approval by voters, or banks that design financial products that they later offer to retail investors. We find that complexity is not necessarily a feature of low quality products. For example, while an increase in alignment between the consumer and the designer leads to more complex but better quality products, higher product demand or lower competition among designers leads to more complex and lower quality products. Our findings can help rationalize the observed trends in quality and complexity of regulatory policies and financial products.

Keywords: product design; information frictions, information transmission; signaling; complexity; regulation; financial products

JEL Classification: D82, D83, G18, P16, D78

Suggested Citation

Asriyan, Vladimir and Foarta, Dana and Vanasco, Victoria, The Good, the Bad and the Complex: Product Design with Imperfect Information (September 29, 2018). Stanford University Graduate School of Business Research Paper No. 19-6. Available at SSRN: https://ssrn.com/abstract=3287963

Vladimir Asriyan (Contact Author)

CREI ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

HOME PAGE: http://crei.cat/people/asriyan/welcome.html

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, E-08005
Spain

HOME PAGE: http://www.econ.upf.edu/en/people/onefaculty.php?id=p7040

Barcelona GSE ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

HOME PAGE: http://www.barcelonagse.eu/Faculty.php?id=510

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Dana Foarta

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Victoria Vanasco

CREi and UPF ( email )

Barcelona GSE ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

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