-Farnamstreetblog.com Complexity Bias: Why We Prefer Complicated to Simple
Most of the behavior biases that have been used to explain investment decision frictions have focused on the idea that mistakes are made because investors engage in fast thinking. Rules of thumb are employed in order to make decision shortcuts, but simplified decisions lead to mistakes.
Yet, there is such a thing as complexity bias. With complexity bias, if someone can choose between the simplest answer and the most complex, there may be a bias for something that is more complex. Many have a fascination with stories that seem to have a high-level of complexity. We seem to prefer explanations that are more complex. We often associate complex language with higher level thinking. The idea that we often try to find patterns in random events could be attributed to the idea that we like complexity.
I have reviewed the literature on this bias and am not persuaded on whether this will supplant the classic rules of thumb bias thinking, but I can see how this bias can have an impact on behavior. The richness of our human biases is truly fascinating.
Using better techniques to find improved signals is a worthy goal. Difficult problems may require better tools. Nevertheless, there should be a premium on the combination of results and simplicity; no more rules or techniques than what is necessary. The Occam's Razor of model-building should apply; just the right amount of rules to do what is required, just the most direct technique to find a solution.