| Abstract: | We present experimental evidence suggesting that human subjects penalize lotteries for complexity. Our results contradict the assumption that human agents follow the discounted expected utility model in multi-period choice with uncertainty. In particular, we show that the buying price offered for an inferior, simple multi-period lottery may sometimes significantly exceed the buying price offered for a better, yet more complicated, alternative, when the lotteries are sold to a group of subjects in a first-price auction. We discuss the possibility to modify the existing models of choice to this “complexity effect”. |
