Does the complexity of an investment opportunity affect how people make decisions? Chris Finneran Katherine Woodfield Chris Finneran Katherine Woodfield

Experimental Design  12 scenarios, each represented in three different investment opportunities:  Poker hands  Pie chart  Real estate investment  The odds were 80/20, 67/33, and 50/50.  Participants chose whether to invest or not.  12 scenarios, each represented in three different investment opportunities:  Poker hands  Pie chart  Real estate investment  The odds were 80/20, 67/33, and 50/50.  Participants chose whether to invest or not.

Motivation  Skewed decision-making  Recession?  Real world  Is everyone rational?  Skewed decision-making  Recession?  Real world  Is everyone rational?

Analysis Excel Spreadsheet

Consistency OddsNumber of inconsistent decisions 80/ / /3325

Profit Maximizing Behavior Column 1 includes all data, column 2 removes anomalies

Anomalies

Conclusions

Conclusion One  People made most non-profitable decisions when the information was given in the form of poker hands.  They made second most non-profitable decisions when dealing with real estate.  They made the least amount of non- profitable decisions when dealing with pie charts.  This is organized in order of most complex to least complex, following our hypothesis.  People made most non-profitable decisions when the information was given in the form of poker hands.  They made second most non-profitable decisions when dealing with real estate.  They made the least amount of non- profitable decisions when dealing with pie charts.  This is organized in order of most complex to least complex, following our hypothesis.

Conclusion Two  People made the most inconsistent decisions when the scenario was 50/50.  a) By nature of a 50/50 scenario, people chose sides arbitrarily.  b) The monetary investment for real estate was higher, so people may have not wanted to invest such a large value in a 50/50 situation. On the other hand, both poker and pie charts were smaller monetary values.  People made the most inconsistent decisions when the scenario was 50/50.  a) By nature of a 50/50 scenario, people chose sides arbitrarily.  b) The monetary investment for real estate was higher, so people may have not wanted to invest such a large value in a 50/50 situation. On the other hand, both poker and pie charts were smaller monetary values.

Conclusion Three  People made the fewest number of inconsistent decisions with 80/20 investment scenarios. This is because the odds are skewed enough to make the decision much more obvious.  People made the second fewest number of inconsistent decisions with 67/33  People made the fewest number of inconsistent decisions with 80/20 investment scenarios. This is because the odds are skewed enough to make the decision much more obvious.  People made the second fewest number of inconsistent decisions with 67/33

Applications  Gambling vs. Investing  Minorities in higher education  Gambling vs. Investing  Minorities in higher education