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Axioms for Salience Perception

Author

Listed:
  • Jonathan W. Leland

    () (National Science Foundation)

  • Mark Schneider

    () (Economic Science Institute, Chapman University)

  • Jonathan Leland

    () (National Science Foundation, Division of Social and Economic Sciences)

Abstract

Models of salience-based choice have become popular in recent years, although there is still no known set of simple conditions or axioms which implies the existence of a salience function. In this paper, we provide simple and natural axioms that characterize the general class of salience functions. As an application we consider a salience-based model of decision making and show that within that setup the fourfold pattern of risk attitudes is a general property of a salience function and that the properties producing that pattern also account for other anomalies involving risky and intertemporal choice.

Suggested Citation

  • Jonathan W. Leland & Mark Schneider & Jonathan Leland, 2016. "Axioms for Salience Perception," Working Papers 16-15, Chapman University, Economic Science Institute.
  • Handle: RePEc:chu:wpaper:16-15
    as

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    File URL: http://www.chapman.edu/research-and-institutions/economic-science-institute/_files/WorkingPapers/leland-schneider-salience-axioms-2016.pdf
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    References listed on IDEAS

    as
    1. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2013. "Salience and Consumer Choice," Journal of Political Economy, University of Chicago Press, vol. 121(5), pages 803-843.
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    3. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    4. Jonathan W. Leland & Mark Schneider, 2016. "Salience, Framing, and Decisions under Risk, Uncertainty, and Time," Working Papers 16-08, Chapman University, Economic Science Institute.
    5. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    6. Ariel Rubinstein, 2003. ""Economics and Psychology"? The Case of Hyperbolic Discounting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1207-1216, November.
    7. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2012. "Salience Theory of Choice Under Risk," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1243-1285.
    8. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    9. Mario Pandelaere & Barbara Briers & Christophe Lembregts, 2011. "How to Make a 29% Increase Look Bigger: The Unit Effect in Option Comparisons," Journal of Consumer Research, Oxford University Press, vol. 38(2), pages 308-322.
    10. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
    11. Rubinstein, Ariel, 1988. "Similarity and decision-making under risk (is there a utility theory resolution to the Allais paradox?)," Journal of Economic Theory, Elsevier, vol. 46(1), pages 145-153, October.
    12. M. Pandelaere & B. Briers, 2011. "How to Make a 29% Increase Look Bigger: Numerosity Effects in Option Comparisons," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/712, Ghent University, Faculty of Economics and Business Administration.
    13. Leland, Jonathan W, 1994. "Generalized Similarity Judgments: An Alternative Explanation for Choice Anomalies," Journal of Risk and Uncertainty, Springer, vol. 9(2), pages 151-172, October.
    14. Klaus Wertenbroch & Dilip Soman & Amitava Chattopadhyay, 2007. "On the Perceived Value of Money: The Reference Dependence of Currency Numerosity Effects," Journal of Consumer Research, Oxford University Press, vol. 34(1), pages 1-10, March.
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    More about this item

    Keywords

    Salience; Diminishing Sensitivity; Fourfold Pattern of Risk Attitudes;

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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