## Abstract

We analyze lottery-choice data in a way that separately estimates the effects of risk aversion and complexity aversion. Complexity is represented by the number of different outcomes in the lottery. A finite mixture random effects model is estimated which assumes that a proportion of the population are complexity-neutral. We find that around 33% of the population are complexity-neutral, around 50% complexity-averse, and the remaining 17% are complexity-loving. Subjects who do react to complexity appear to have a bias towards complexity aversion at the start of the experiment, but complexity aversion reduces with experience, to the extent that the average subject is (almost) complexity-neutral by the end of the experiment. Complexity aversion is found to increase with age and to be higher for non-UK students than for UK students. We also find some evidence that, when evaluating complex lotteries, subjects perceive probabilities in accordance with Prospective Reference Theory.

## Keywords

Complexity aversion Complexity preferences Risk preferences Mixture models Learning## JEL Classifications

C91 D03 D81## Notes

### Acknowledgments

Funding from the University of East Anglia, advice from Bob Sugden and from participants at the Asia Pacific meeting of the Economic Science Association in Auckland in February 2014, and research assistance from Axel Sonntag are gratefully acknowledged. The usual disclaimer applies. The experimental instructions can be found in the appendix.

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