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Turning on Dimensional Prominence in Decision Making: Experiments and a Model

Author

Listed:
  • Ayala Arad

    (Coller School of Management, Tel Aviv University, Tel Aviv 69978, Israel)

  • Amnon Maltz

    (Department of Economics, University of Haifa, Haifa 3498838, Israel)

Abstract

Could introducing a tiny interest rate on positive balances of checking accounts affect investment decisions? We suggest, counterintuitively, that it might decrease allocations to checking accounts and increase riskless investments with higher returns. This violation of monotonicity is a potential outcome of a novel behavioral phenomenon that we formalize and investigate experimentally. It posits that even a small interest rate highlights or turns on the safe gains dimension, bumping up its decision weight while shrouding other considerations, such as liquidity. Consequently, choices may shift from the most liquid option, the checking account, to safe investments with superior returns. Our exploration of this phenomenon covers three different choice environments: investment decisions, social preferences, and choice under uncertainty.

Suggested Citation

  • Ayala Arad & Amnon Maltz, 2022. "Turning on Dimensional Prominence in Decision Making: Experiments and a Model," Management Science, INFORMS, vol. 68(8), pages 6075-6099, August.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:8:p:6075-6099
    DOI: 10.1287/mnsc.2021.4205
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    References listed on IDEAS

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