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Salient Cues and Complexity

Author

Listed:
  • Markus Dertwinkel-Kalt

    (University of Münster, 48149 Münster, Germany; Max Planck Institute for Research on Collective Goods, 53113 Bonn, Germany)

  • Mats Köster

    (Central European University, 1100 Vienna, Austria)

Abstract

Important decisions are often complex, and existing evidence suggests that complexity can affect economic behavior. It is an open question, however, exactly when and how complexity matters. We hypothesize that salient cues—standing out in the choice context—mitigate the effect of complexity on choices. We theoretically develop and experimentally test this hypothesis in the context of portfolio selection. We find that, in both simple and complex problems, subjects seek highly right-skewed portfolios, which have an extreme and salient upside, and avoid highly left-skewed portfolios with an extreme and salient downside. Complexity does affect, however, choices among symmetric portfolios, which have neither a salient upside nor downside. Absent a salient cue, subjects diversify naively. Evidence on response times and memory supports our salience-based explanation.

Suggested Citation

  • Markus Dertwinkel-Kalt & Mats Köster, 2025. "Salient Cues and Complexity," Management Science, INFORMS, vol. 71(1), pages 428-469, January.
    • Handle: RePEc:inm:ormnsc:v:71:y:2025:i:1:p:428-469
    DOI: 10.1287/mnsc.2022.00652
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