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Optimal Stopping in a Dynamic Salience Model

Author

Listed:
  • Markus Dertwinkel-Kalt
  • Jonas Frey

Abstract

We study dynamic choice under risk through the lens of salience theory. We derive predictions on salient thinkers’ gambling decisions and strategy choices. We test our model experimentally and find support for all of our predictions. We also detect a strong correlation between static and dynamic choices, suggesting that salience theory can coherently explain risky choice in both static and dynamic contexts. Our results help to understand when people sell assets, stop gambling, enter the job market or retire.

Suggested Citation

  • Markus Dertwinkel-Kalt & Jonas Frey, 2020. "Optimal Stopping in a Dynamic Salience Model," CESifo Working Paper Series 8496, CESifo.
    • Handle: RePEc:ces:ceswps:_8496
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp8496.pdf
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    salience theory; skewness seeking; behavioural stopping;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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