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The Good, the Bad and the Complex: Product Design with Imperfect Information

Author

Listed:
  • Vladimir Asriyan
  • Dana Foarta
  • Victoria Vanasco
Abstract
We study the joint determination of product quality and complexity in a rational setting. We introduce a novel notion of complexity, which affects how costly it is for an agent to acquire information about product quality. In our 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. We find 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 produce novel empirical implications on the relationship between quality and complexity, which we relate to evidence within the context of financial products and regulatory policies.

Suggested Citation

  • Vladimir Asriyan & Dana Foarta & Victoria Vanasco, 2021. "The Good, the Bad and the Complex: Product Design with Imperfect Information," BAFFI CAREFIN Working Papers 21155, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    • Handle: RePEc:baf:cbafwp:cbafwp21155
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Foarta, Dana & Morelli, Massimo, 2020. "Complexity and the Reform Process," Research Papers 3891, Stanford University, Graduate School of Business.
    2. Ana Babus & Maryam farboodi, 2019. "The Hidden Costs of Strategic Opacity," 2019 Meeting Papers 1508, Society for Economic Dynamics.
    3. Geng, Sen & Guan, Menglong, 2023. "Trustworthy by design," Games and Economic Behavior, Elsevier, vol. 141(C), pages 70-87.

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    More about this item

    Keywords

    complexity; information acquisition; signaling; regulation; financial products;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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