Simplicity and Risk

• 成果类型: Article
• 署名作者: Puri, Indira
• 署名单位: New York University
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.13417
• 发表日期: 2025
• 页码: 1029-1080
• 关键词: working-memory capacity; ADVANCED PROGRESSIVE MATRICES; prospect-theory; expected utility; Fluid intelligence; probability; CHOICE; complexity; DECISION; MODEL

摘要

I introduce and test for preference for simplicity in choice under risk. I characterize the theory axiomatically, and derive its properties and unique predictions relative to canonical models. By designing and running theoretically motivated experiments, I document that people value simplicity in ways not fully captured by existing models that study risk premia in financial markets. Participants' risk premia increase as complexity increases, holding moments fixed; their dominance violations increase in complexity; their behavior is predicted by simplicity's characterizing axiom; and their complexity aversion is heterogeneous in cognitive ability. None of expected utility theory, cumulative prospect theory, prospect theory, rational inattention, sparsity, salience, or probability weighting that differs by number of outcomes fully capture the experimental findings. I generalize the underlying theory to additionally capture broader measures of complexity, including obfuscation, computation, and language effects.