Experimental and Behavioural Economics Seminar Series - Kirby Nielsen (Caltech)

Title: Rules in the Face of Complexity

Abstract: We show that complexity can affect how people approach decision environments (the ''extensive margin''), and also can affect choices conditional on a given approach (the ''intensive margin''). On the extensive margin, we hypothesize that individuals resort to ''rules''---simplified choice processes that we measure as being easier to describe to another person---as the complexity of the decision environment increases. We test our hypothesis using an experiment by exogenously varying the complexity of the decision environment and measuring how well another individual can replicate the decision-maker's choices given the decision-maker's description of how they chose. We find that individuals' choice processes are more describable in complex choice environments, which we interpret as evidence that decision-making becomes more rule-like as complexity increases. Additional secondary evidence suggests that rule-based decision-making is a choice simplification that reduces the cognitive costs of decision-making. On the intensive margin, when we exogenously fix the choice process, we find that complexity leads to more decision noise.