Vladimir Asriyan

Centre de Recerca en Economia Internacional

In 2023, we published a theoretical study that examined the determinants of the quality and the complexity of products. We introduced a novel notion of product complexity, which affects how difficult it is for an agent to acquire information about, and thus understand, product quality. In our theoretical model, an agent can accept or reject a product proposed by a designer, who can affect the quality and the complexity of the product. Examples include banks that design financial products that they offer to retail investors, or policymakers who propose policies for approval by voters. In our study, we uncovered that complexity is not necessarily a feature of low-quality products. While an increase in alignment between the agent and the designer leads to more complex but better-quality products, higher product demand or lower competition among designers leads to more complex and lower quality products. Our findings produced novel empirical implications on the relationship
between quality and complexity, which we related to the existing empirical evidence within the context of financial products and regulatory policies.

The figure on the right depicts the key mechanism behind our findings. The vertical axis in each panel denotes the likelihood that the agent accepts the product proposed by the designer, whereas the horizontal axis depicts the product’s complexity. The solid-blue (dashed-red) schedule depicts the relationship between a product’s likelihood of being accepted and its
complexity. As the figure illustrates, our theory predicts that whether the agent accepts the product depends on (i) how optimistic he/she is about the product’s quality ex-ante and (ii) how complex the product is, which determines how
much information he/she can obtain about the product’s quality. The key insight is that the more optimistic is the agent (i.e., as we move from the right panel to the left panel) the more likely he/she is to accept the product independently of
its underlying quality; hence, in this case, product designers have an incentive to make their products complex so as to prevent the consumer from uncovering the product’s true quality.

  • Reference/s:
    – Asriyan V, Foarta D & Vanasco V. 2023. “The Good, the Bad, and the Complex: Product Design with Imperfect Information.”American Economic Journal: Microeconomics, 15 (2): 187-226.