Salience Theory of Choice Under Risk
AbstractWe present a theory of choice among lotteries in which the decision maker's attention is drawn to (precisely defined) salient payoffs. This leads the decision maker to a context-dependent representation of lotteries in which true probabilities are replaced by decision weights distorted in favor of salient payoffs. By specifying decision weights as a function of payoffs, our model provides a novel and unified account of many empirical phenomena, including frequent risk-seeking behavior, invariance failures such as the Allais paradox, and preference reversals. It also yields new predictions, including some that distinguish it from prospect theory, which we test. JEL Codes: D03, D81. Copyright 2012, Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal The Quarterly Journal of Economics.
Volume (Year): 127 (2012)
Issue (Month): 3 ()
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Other versions of this item:
- Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2010. "Salience Theory of Choice Under Risk," NBER Working Papers 16387, National Bureau of Economic Research, Inc.
- Andrei Shleifer & Nicola Gennaioli & Pedro Bordalo, 2011. "Salience theory of choice under risk," 2011 Meeting Papers 1442, Society for Economic Dynamics.
- Shleifer, Andrei & Bordalo, Pedro & Gennaioli, Nicola, 2012. "Salience Theory of Choice Under Risk," Scholarly Articles 10636303, Harvard University Department of Economics.
- Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, . "Salience Theory of Choice Under Risk," Working Paper 29210, Harvard University OpenScholar.
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Looney, Adam & Kroft, Kory & Chetty, Raj, 2009. "Salience and Taxation: Theory and Evidence," Scholarly Articles 9748525, Harvard University Department of Economics.
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- Nicola Gennaioli & Andrei Shleifer, 2010.
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- Nicola Gennaioli & Andrei Shleifer, 2009. "What comes to mind," Economics Working Papers 1186, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2009.
- Nicola Gennaioli & Andrei Shleifer, 2009. "What Comes to Mind," NBER Working Papers 15084, National Bureau of Economic Research, Inc.
- Camerer, Colin F & Ho, Teck-Hua, 1994. "Violations of the Betweenness Axiom and Nonlinearity in Probability," Journal of Risk and Uncertainty, Springer, vol. 8(2), pages 167-96, March.
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