The Complexity of Economic Decisions

71 Pages Posted: 17 Jul 2023

See all articles by Xavier Gabaix

Xavier Gabaix

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Thomas Graeber

Harvard Business School

Date Written: July 10, 2023


We propose a theory of the complexity of economic decisions. Leveraging a macroeconomic framework of production functions, we conceptualize the mind as a cognitive economy, where a task’s complexity is determined by its composition of cognitive operations. Complexity emerges as the inverse of the total factor productivity of thinking about a task. It increases in the number of importance-weighted components and decreases in the degree to which the effect of one or a few components on the optimal action dominates. Higher complexity generates larger decision errors and behavioral attenuation to variation in problem parameters. The model applies both to continuous and discrete choice. We develop a theory-guided experimental methodology for measuring subjective perceptions of complexity that is simple and portable. A series of experiments test and confirm the central predictions of our model for perceptions of complexity, behavioral attenuation, and decision errors. We apply our framework to core economic decision domains, including the complexity of static consumption choice with one or several interacting goods, consumption over time, the tax system, forecasting, and discrete choice between goods or lotteries. These applications demonstrate how our approach to complexity can be used in empirical and theoretical work.

Keywords: Complexity, behavioral theory, inattention, bounded rationality, dampening, consumer theory, understanding of general equilibrium

JEL Classification: C91, D03, D11, D14, D91

Suggested Citation

Gabaix, Xavier and Graeber, Thomas, The Complexity of Economic Decisions (July 10, 2023). Available at SSRN: or

Xavier Gabaix (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Thomas Graeber

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States


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