Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/325032 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 12041
Publisher: 
CESifo GmbH, Munich
Abstract: 
Mental models help people navigate complex environments. This paper studies how people deal with model uncertainty. In an experiment, participants estimate a company's value, facing uncertainty about which one of two models correctly determines its true value. Using a between-subjects design, we vary the degree of model complexity. Results show that in high-complexity conditions people fully neglect model uncertainty in their actions. However, their beliefs continue to reflect model uncertainty. This disconnect between beliefs and actions suggests that complexity leads to biased decision-making, while beliefs remain more nuanced. Furthermore, we show that complexity, via full uncertainty neglect, leads to higher confidence in the optimality of own actions.
Subjects: 
mental models
geliefs
attention
confidence
representations
JEL: 
D01
D83
Document Type: 
Working Paper
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