Pietro Ortoleva (Princeton University)

Caution in the Face of Complexity

Abstract: We show experimentally that people undervalue options they find complex. We document this phenomenon for tasks as diverse as belief updating, visual perception, and compound risk. This behavior is incompatible
with Expected Utility,even when accounting for risk aversion and incorrect beliefs; instead, it suggests people dislike the cognitive uncertainty they experience in the face of complexity in a way reminiscent of ambiguity
aversion. The data supports this explanation: our effects increase when both cognitive uncertainty and ambiguity aversion increase. We also find corroborating evidence when revisiting Enke and Graeber (2023)’s data: in addition to attenuated responses, cognitive uncertainty also lower how much subjects value lotteries. At abroad level, our results suggest that individual preferences toward complexity matter in cognitive models. At a narrower level, our paper informs the literature on non-Bayesian updating, which overlooks complexity aversion, and the connection between compound lottery and ambiguity aversion, which, we show, holds primarily for subjects who find compound lotteries complex.