Salient Cues and Complexity
72 Pages Posted: 12 Nov 2020 Last revised: 8 Feb 2022
Date Written: February 8, 2022
Important decisions are often complex, and existing evidence suggests that complexity can affect economic choice. It is still an open question, however, exactly when and how it matters for behavior. We hypothesize that people use "salient cues" to solve complex problems, while absent such a cue they are easily overwhelmed by complexity. We experimentally test and support this hypothesis in the context of choice under risk.
Keywords: Salience, Complexity, Skewness, Portfolio Selection, (Naive) Diversification
JEL Classification: D81
Suggested Citation: Suggested Citation