Topic: The Tragedy of Complexity

Speaker: Martin Oehmke, Associate Professor of Finance, London School of Economics and Political Science

Date: April 18th (Thursday)

Time: 10:00-11:30am

Location: Building 4 Room 102

Language: English

Abstract:

This paper presents an equilibrium theory of product complexity. Complex products generate higher potential value, but require more attention from the consumer. Because consumer attention is a limited common resource, an attention externality arises: Sellers distort the complexity of their own products to grab attention from other products. This externality can lead to too much or too little complexity depending on product features and the consumer’s attention constraint. Products that are well understood in equilibrium are too complex, while products that are not well understood are too simple. Our theory sheds light on the absolute and relative complexity of different goods, including retail financial products.

About the speaker:

Martin Oehmke is an Associate Professor of Finance at the London School of Economics. Previously, he was the Roger F. Murray Associate Professor of Finance at Columbia Business School and a Faculty Research Fellow in the NBER’s corporate finance program. He received his PhD in Economics from Princeton in 2009. His main research interests are financial intermediation and corporate finance theory.

Martin is the author of numerous articles in leading journals in finance and economics. His papers have won a number of prizes, including a Brattle Distinguished Paper Award. He is an associate editor at the Journal of Finance and the Journal of Financial Intermediation and serves on the editorial board of the Review of Economic Studies. He is a CEPR Research Fellow and a member of the Finance Theory Group, where he previously served on the board. Martin is the recipient of an ERC Starting Grant and serves on the Advisory Scientific Committee of the European Systemic Risk Board.