Andrea Langer-Ballion

Article 'Salient Cues and Complexity' accepted for publication in Management Science.

Important decisions are often complex, and previous findings suggest that complexity can influence economic decisions. However, it remains an open question as to when and how exactly complexity plays a role. We hypothesize that salient cues mitigate the effect of complexity on decisions. We derive this hypothesis theoretically from the literature and experimentally test it in the context of portfolio decisions. We observe that participants strongly prefer right-skewed portfolios, which have a salient advantage, and strongly avoid left-skewed portfolios, which have a salient disadvantage, both in simple and complex problems. However, complexity influences the choice between symmetric portfolios that have neither a salient advantage nor disadvantage. In fact, in the absence of a salient cue, participants diversify in a naive manner. Additional results regarding reaction times and what participants can recall particularly well support our salience-based explanation for the effect of complexity on economic decision-making behavior.